Dominion Bond Rating Service celebrated its first European deal last month - rating the Indus deal from Barclays Capital. Will its "we are different" stance transform DBRS into a competing player against the big three agencies?

How DBRS decides to move forward may be a source of speculation, but the fact that the rating agency chose the "we are different" approach makes natural sense. DBRS believes that investors increasingly challenge rating agency opinions. The agency said that it sets itself apart from its competitors because it isn't driven by a formulaic mantra - it can offer players objective research and aims to build its market share based on credibility and objectivity.

"Rating changes are important and yet possess little information value," said a recent report from the agency. "Credit ratings do not help parties manage risk, and yet these parties increasingly rely on ratings."

How different is this really from what the other agencies are trying to do in Europe?

The logical comparison would be to set DBRS's start-up efforts against those of Fitch Ratings, also a relative newcomer to the European playing field. Labeling itself as different worked for Fitch, which, as a newcomer, penetrated the market by setting itself apart from what the two established giants had to offer. In stuffy Europe, Fitch's aggressive-style commentary came as a refreshing change, especially as the market matured and investors increasingly looked for more opinions to make decisions on riskier structuring.

But Fitch had an advantage that DBRS does not. At Fitch's inception, Europe had several smaller, struggling agencies, competing to offer investors tidbits of information that covered different aspects of the financial market. Fitch flexed some muscle early on and, through a series of mergers and acquisitions, was able to grow the business into what it is today. DBRS, on the other hand, has less opportunity on the M&A front and will likely have to depend on growing its business organically. The agency has started by poaching talent from its more established rivals.

And if DBRS is not driven by the same motivation as competing agencies, then what is it driven by and how does it intend to make money? At its heart, a rating agency rates transactions. But a new face has to add value beyond this. A market source said that the crunch will come in a couple of years when the star players that DBRS poached from competing agencies see their lock-in periods expire. "It will be interesting to see if they stick around," he said.

If anything, DBRS's efforts adds valuable competition, and the more choices investors have, the better off they'll be when it comes to making an informed decision.

(c) 2007 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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