Rating Agency DBRS Enters Lev Finance
June 9, 2008
Toronto-based ratings agency DBRS today unveiled a new leveraged finance rating methodology, which will be used in rating all speculative-grade corporate debt. The methodology uses traditional credit ratings, plus newly introduced recovery ratings, to capture an issuer’s risk of default and the impact of default on its debt.
“Our firm has been planning a major push into the North American leveraged finance market for some time,” said Peter Bethlenfalvy, head of global corporate ratings. “That’s why we went out last year and recruited Steve Bavaria, who previously created loan and recovery ratings and introduced them to the leveraged finance market during his 15 years at Standard & Poor’s.
“Credit ratings have become well established in the leveraged loan, high yield bond and private placement markets,” Mr. Bethlenfalvy said. “Now with defaults starting to rise and investors more credit sensitive than ever, as a result of recent events, we believe our clients and constituents will see value in DBRS’s ratings, insights and analysis in the leveraged sector, as they have for many years in other credit markets.”
DBRS’s new recovery rating scale will complement its traditional ratings. Issuers will continue to receive an issuer rating, on the traditional letter-based scale, which focuses on the risk of default. The new recovery ratings will focus on the expected recovery that a particular instrument’s holders may expect to receive if the issuer defaults. Recovery ratings will be on a one to six scale, with one indicating “outstanding” recovery and six denoting “poor” recovery. The ratings agency will also assign each instrument a traditional letter-based rating, which may be above, below, or the same as its issuer rating, depending on the recovery prospects of that particular instrument as reflected in its recovery rating.
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