DBRS Releases Criteria Report for U.S. ABCP Conduits – Credit and Liquidity

DBRS has today released “Asset-Backed Commercial Paper Criteria Report: U.S. ABCP Conduits – Credit and Liquidity,” a methodology that gives an overview of the key factors with respect to credit and liquidity issues when assessing the overall risk profile of U.S. ABCP conduits. DBRS examines program-wide credit enhancement (PWCE), the fungible layer of credit enhancement generally available to all transactions within a conduit’s portfolio, in a unique way.

DBRS believes that the size of the PWCE relative to the composition of the portfolio of transactions within a CP conduit is a vital factor in assessing the overall risk profile to the CP investor. The difference between a CP program that has 5% PWCE and 10% PWCE may be material and should be reflected in the rating of the CP, all else being equal. For example, if a conduit’s portfolio comprises “A,” AA and AAA transactions and has 5% PWCE, that conduit may command a rating of R-1 (low). However, if that conduit had the same portfolio with 10% PWCE, an R-1 (middle) or R-1 (high) rating may be more accurate.

DBRS is in the distinctive position to offer more information to the CP investor by precisely reflecting the overall risk profile of the conduit through more granular ratings. The three short-term ratings of R-1 (low), R-1 (middle) and R-1 (high) allow DBRS to distinguish among enhanced conduit portfolios that range in credit quality from A(low) to AAA.