DBRS is requesting comments on the proposed rating methodology for U.S. servicer advance deals backed by reimbursement rights for advances made to RMBS trusts, a release from the agency said.
The deadline for comments is on or before January 11, 2010. The rating agency will publish a final methodology following the review and evaluation of all submissions.
The methodology offers an overview of the key factors that DBRS thinks could affect the performance of servicer advance deals and the approach for rating such transactions.
These factors include: operational expertise and financial condition of the servicer; historical advance recovery rates of the servicer; transaction capital structure, proposed ratings and credit enhancement; cash flow analysis; and lgal structure and opinions.
As part of the rating process, the rating agency performs an operational risk review of the servicer to offer insight into how the servicer’s operational capabilities have impacted past performance.
The review also helps establish expectations for future performance. Additionally, the rating agency said that for each requested rating, DBRS develops cash flow stress assumptions based on the proposed transaction structure to test the interest and timing mismatches between the advance recoveries and the note obligations under various scenarios.