Dominion Bond Rating Service (DBRS) is setting up its own brand of structured finance ratings in Europe (ASR, 06/05/06). Although this is expected to add a new dimension to the European ratings business, it would likely take some time before any impact is felt.

Some market sources believe there are still barriers that DBRS will have to overcome before it establishes itself as an equal among the big three ratings agency. Fitch Ratings, which is a relative newcomer to European structured finance ratings, began establishing its presence in this sector of the market more than five years ago. A source at Fitch said that the rating agency is still often referred to as the "third rating agency," behind Standard & Poor's and Moody's Investors Service.

The Fitch team has approximately 150 analysts in London alone, which is about the same number of people working globally for DBRS. Developing Fitch's structured finance practice also took a lot of hard work, and was aided by a series of mergers and acquisitions that enabled the agency to grow rapidly. One source doubted these types of acquisitions could be made anymore.

If DBRS's establishment in the European markets mirrors its evolution in the U.S., it will likely take a year before it has a model and criteria in place. Nevertheless, the added competition can only be a good thing for market transparency. "All the signs indicate that the European structured finance market would welcome a credible alternative opinion," said Michael MacKenzie, senior vice president of the new structured finance group at DBRS.

Mackenzie added that the early June announcement comes after a long period of research conducted by DBRS. "Our market research and discussions with market participants point to the need for more competition, transparency and timeliness and a raising of service standards in area of structured finance ratings in Europe," Mackenzie said.

The new hires for the team include seasoned players, adding the element of experience to the start-up phase. Mackenzie said that DBRS would be releasing more information in the coming weeks regarding who the new names on the team will be as well as additional details on its business platform.

The new group will be based in London, and will be led by Managing Director Apea Koranteng. "DBRS' commitment to the EMEA region reflects the importance of the region to global capital markets and the high demand for credit ratings as capital markets activity increases in the region," Koranteng said. "I am very excited about the opportunity and initial success in attracting a high caliber team of established professionals from the market to help DBRS build its ratings coverage in the region."

Fitch's next move is to get in on the European SIV action. "SIVs have restrictions on what rated paper they can buy and, at the moment, they are lobbying hard to have a Fitch-rated bucket added to their portfolios," the Fitch source said.

Meanwhile, the logical first move for DBRS would be in the CDO sector where investors usually only require one rating, sources said.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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