Methodology Review: Subscription Loans

In February 2024, Morningstar DBRS published an updated methodology to rate subscription loans titled “Rating Debt Issued by Investment Funds, Appendix I – Subscription Loan Facilities”. The updated methodology supersedes “Rating and Monitoring Subscription Loans (Capital Call) along with the predictive model, “Diversity Model for Capital Calls.” The changed methodology expands the criteria for the subscription loan asset class globally and moves the criteria to an appendix of the “Global Methodology for Rating Debt Issued by Investment Funds” (the Fund Methodology). With the move to an appendix of the Fund Methodology, the ratings assigned to subscription loan transactions will be corporate ratings instead of structured finance ratings. Join Morningstar DBRS for a Methodology Review webinar as we highlight the changes to our approach to rating and monitoring subscription loans. Presented by Jerry van Koolbergen, Managing Director, Structured Credit, and Stuart Rothenberg, Senior Vice President, Structured Credit, our discussion will feature the material changes including updates to (1) Morningstar DBRS’ approach for modeling high net-worth individuals (HNWIs), (2) the recovery rate and correlation assumptions for LP investors, and (3) the jurisdictions used for recovery rates. Additionally, the methodology update proposes the utilization of the CLO Insight Model to assess the credit risk of the LP investors and to derive a range of asset coverage ratios. Following the presentation, the audience is invited to participate in a Q&A session to participate in the conversation.