DBRS launches new leveraged finance rating methodology

By Angela McDaniels

Tacoma, Wash., June 9 - DBRS began using its new leveraged finance rating methodology on Monday, which will be applied in rating all speculative-grade corporate debt going forward, according to a company news release.

The Toronto-based rating agency said it uses its traditional credit ratings, plus its newly introduced recovery ratings, to capture an issuer's risk of default as well as the impact of default on that issuer's various debt classes.

Under the new methodology, issuers will continue to be assigned an issuer rating, on the traditional letter-based scale, that focuses on the risk of default in timely payments of the issuer's obligations. Each instrument will also be assigned a traditional letter-based rating.

Instruments will also receive a new recovery rating, which 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 1 to 6 scale, with 1 representing "outstanding" recovery and the lowest rating of 6 denoting "poor" recovery.

"Our firm has been planning a major push into the North American leveraged finance market for some time," Peter Bethlenfalvy, DBRS group managing director and head of global corporate ratings, said in the release.

"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."

Bavaria is DBRS' managing director of leveraged finance. In the release, he said that almost three-quarters of all rated companies in North America are speculative grade, with over half of those in the lower single-B category, and that close to one-third of single-B rated companies default over the term of a typical leveraged loan or high-yield bond.

Full details on the new methodology are available at www.dbrs.com.

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