DBRS and Morningstar Credit Ratings Provide Notification on Methodology Decisions for U.S. Healthcare Receivables Securitization Transactions

On July 11, 2019, Morningstar Credit Ratings, LLC (MCR) and DBRS, Inc. (DBRS; together, DBRS Morningstar) published their first announcement regarding the integration of the analytical teams focused in the U.S. structured finance market. Today’s press release is the thirty-seventh in a series to keep the market updated on analytical integration decisions and is focused on the U.S. asset-backed securities (ABS) sector.

<a href="https://www.dbrsmorningstar.com/research/347875/" target="_blank">“DBRS and Morningstar Credit Ratings Announce Analytical Integration Process and Ratings Overlap”</a>

U.S. HEALTHCARE RECEIVABLES SECURITIZATION ASSET CLASS
DBRS Morningstar conducted an analysis of the U.S. Healthcare Receivables Securitization asset class and concluded that, following the notification period described herein, new engagements in this asset class will be rated and monitored by DBRS using a combination of the following methodologies (collectively, the Applicable Healthcare Methodologies):

(1) <a href="https://www.dbrsmorningstar.com/research/352469/" target="blank">“Rating U.S. Structured Finance Transactions – Appendix I: U.S. Consumer Loan Transactions”</a> (2) <a href="https://www.dbrsmorningstar.com/research/357452/" target="blank">“Rating CLOs and CDOs of Large Corporate Credit” (DBRS CLO Asset Model)</a>

The “Rating U.S. Structured Finance Transactions – Appendix I: U.S. Consumer Loan ABS Transactions” methodology will be used as the primary methodology to assess the key analytical considerations made in the rating of a transaction, including the determination of assumed default rates and payment timing, derived from historical payments made by patients.

The “Rating CLOs and CDOs of Large Corporate Credit” methodology will be used to calculate the weighted-average probability of default of the underlying healthcare providers based on the credit rating of each of the providers, allowing DBRS Morningstar to stress the recoveries of defaulted receivables.

The “Rating CLOs and CDOs of Large Corporate Credit” methodology reflects the use of the DBRS CLO Asset Model (the Model), which generates Stressed Default Rates of a pool of assets using a Monte Carlo process. The Model generates a hypothetical pool that attempts to maximize the risk in the portfolio subject to the various constraints. This stressed modeling pool is then run through the Monte Carlo simulation component of the Model to generate a Stressed Default Rate at each rating level.

On June 16, 2020, DBRS Morningstar published a Request for Comment (RFC) on the “Rating CLOs and CDOs of Large Corporate Credit” methodology. The changes to the methodology are deemed material as they are intended to address a wider variety of structural provisions in assigning and monitoring ratings on U.S. and European collateralized loan obligation transactions. No changes are proposed to the Model v.2.2.3.

<a href="https://www.dbrsmorningstar.com/research/362735/" target="_blank">“Rating CLOs and CDOs of Large Corporate Credit — Request for Comment”</a>

The notification period related to today’s methodology selections will close on July 16, 2020, the same date as the close of the RFC period, and the selections will become effective on the date of the finalization of the RFC.

In addition, in conjunction with today’s announcement, DBRS Morningstar updated the cover note to MCR’s “U.S. ABS General Ratings Methodology.” DBRS Morningstar methodologies, including any MCR methodology selected for use by DBRS Morningstar as part of the analytical integration process, are publicly available on www.dbrsmorningstar.com under Methodologies & Criteria.

For analytical inquiries regarding this press release, please contact Chris D’Onofrio, Managing Director, Head of U.S. ABS.

DBRS
Chris D’Onofrio
christopher.donofrio@dbrsmorningstar.com
+1 212 806-3284

For rating engagement inquiries regarding the U.S. ABS asset class coverage or any asset classes not listed, please contact Sean O’Connor, Managing Director, Head of Global Business Development.

DBRS
Sean O’Connor
sean.oconnor@dbrsmorningstar.com
+1 212 806-3252

For more information on the transactions rated by DBRS, please visit www.dbrsmorningstar.com or contact DBRS at info@dbrsmorningstar.com. For transactions rated by MCR, please visit www.morningstarcreditratings.com or contact ratingagency@morningstar.com.

DBRS
Stephen Bernard
stephen.bernard@dbrsmorningstar.com
+1 212 806-3240