Morningstar Credit Ratings has published its methodology for US asset-backed securities (ABS) ratings, outlining the principles the company’s analysts apply when rating and monitoring ABS transactions.
The methodology serves as Morningstar’s framework for evaluating financial, operating, and corporate asset transactions. Morningstar announced its plans earlier this year to expand into ABS ratings services, and senior leaders from the company will be available today to discuss the asset class at IMN’s ABS East Conference in Miami.
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Vickie Tillman, president of Morningstar Credit Ratings, LLC, said, "We are deeply committed to providing investors with concise and clearly articulated structured credit analysis and transparency through our new ABS ratings framework. Our ABS analyst team’s experience in financial, operating, and corporate assets transactions, combined with our defined methodology and insightful opinions, will help investors make more informed investment decisions."
Morningstar’s ABS ratings methodology addresses seven areas of analysis: legal structure, asset quality, transaction structure, credit support, cash flow analysis, originator and servicer quality, and counterparty credit risk.
The methodology also includes monitoring, which is an essential part of Morningstar’s ratings process. Morningstar will analyze the performance of ABS-rated transactions relative to initial expectations, the likelihood that performance triggers will be breached, and any information obtained from operational reviews.
Morningstar has 20 letter rating categories ranging from "AAA" to "D" including plus and minus gradations to express its opinion about the credit quality of an ABS. Morningstar’s ABS ratings supplement the company’s existing commercial mortgage-backed securities and residential mortgage-backed securities ratings.
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