ESG Factors in Auto ABS: Governance Factors

This commentary is the third and last in a series of commentaries that identifies the environmental, social, and governance factors that could affect DBRS Morningstar asset-backed security (ABS) credit ratings relating to notes backed by auto loans and leases. In this commentary, DBRS Morningstar highlights one relevant governance factor that it considers in its ratings analysis, namely transaction governance:

-- Transaction governance considerations related to the independence of the issuer or trust, alignment of interest between transaction parties, and provisions for future events can affect transaction credit performance. Ongoing performance reporting affects the ability to monitor credit risk.

-- The benchmark DBRS Morningstar uses for transaction governance is difficult to exceed, hence governance considerations will likely be credit neutral in most cases but can also be credit negative. To date, there have not been any rating actions in global auto ABS with a credit relevant or significant governance factor.