Global Macroeconomic Scenarios: Application to DBRS Morningstar Credit Ratings

As the COVID-19 pandemic spreads and its consequences unfold, it is hard to anticipate the ultimate impact on the variables which drive credit quality. In the context of this highly uncertain environment and for the sake of transparency, DBRS Morningstar released on April 16, 2020, a set of macroeconomic scenarios for select economies. The moderate and the adverse scenarios are being used in the context of our rating analysis, with the moderate scenario serving as the primary anchor for current ratings (the baseline or base case scenario), and the adverse scenario serving as a benchmark for sensitivity analysis for the same ratings (the downside scenario).

Both scenarios are subject to revisions. This is particularly true of the moderate scenario, which, unless the situation stabilizes in coming weeks, may shift gradually lower. The adverse scenario, which is intended to reflect a significantly more bearish (albeit not necessarily worst case) scenario, is less likely to be revised, unless conditions over the next several months prove to be significantly better or worse than expected.

Each analytical group within DBRS Morningstar uses these scenarios to adjust the assumptions for relevant driving factors set forth in the applicable methodology, based on the perceived sensitivity of the factors to the macroeconomic environment and taking account of the numerous measures governments and others have put in place to mitigate the economic consequences of the pandemic. These sector- or asset class-specific assumptions are normally determined as part of the analytical process with the adjustments intended to reflect the corresponding macroeconomic scenarios.

DBRS Morningstar describes in its rating disclosures the assumptions and adjustments it is making to provide transparency regarding their impact on the rating of the issuer or issue concerned. DBRS Morningstar's related research on the impact of these scenarios on industries, sectors, asset classes and individual ratings is also available on dbrsmorningstar.com.

For more information on the impact of coronavirus on DBRS Morningstar ratings, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.