DBRS is planning to hire analysts to help it win a share of European covered bond ratings and is hopeful that it could have rated its first programme by the end of the year, an analyst at the rating agency told The Covered Bond Report.

The Toronto-headquartered rating agency released a publication, “Rating European Covered Bonds”, on Monday that updated its methodology. Keith Gorman, senior vice president, US and European structured finance at DBRS, said that this comes as part of a push by the firm into the covered bond market.

“DBRS has established itself back in the European RMBS market and the ABS market over the last 12 months, particularly with the ECB second ratings requirement for repo eligibility,” he said. “We’ve rated more RMBS, ABS, and SME CLO deals, particularly in Spain, Portugal and the Netherlands.”

“And with this development of the platform in London, getting back into the covered bond space is just a natural progression. Most issuers we’ve been working with and that we’ve provided some credit analysis for over the last 12 months, they’ve shown a keen interest in us providing a covered bond rating as well.”

Gorman, based in New York, is leading European covered bond ratings for DBRS but said that the rating agency is looking to build a team in London. He said that he expects the firm to have begun rating European covered bonds by the end of the year.

Established covered bond raters have come in for criticism over their methodologies recently and lost clients as a result, but Gorman played this down as a factor in DBRS’s move.

“DBRS views itself as another service provider to investors and other market participants by providing a transparent ratings approach,” he said.

Karlo Fuchs, analytical manager for covered bonds at Standard & Poor’s, said that S&P welcomes DBRS’s move.

“We encourage free and fair competition because it allows investors to get different views on the same risk and enables them to determine which ratings are credible and useful,” he said.

Other market participants echoed Fuchs’s view, although one said that any new entrant into the market would face a tough time, having to choose between a rigorous approach that could put off issuers and a more lenient approach that risked being viewed as a “me too” opinion.

DBRS’s Gorman said that the update published on Monday did not contain any major changes.

The rating agency previously assigned jurisdictions to different buckets as part of its rating methodology. Gorman said that the rating agency had decided not to publish a new ranking in its update.

“We’re probably going to publish that on a transaction by transaction basis initially, with the expectation of updating our criteria to generalise all of the jurisdictions,” he said. “Because we don’t have the back-testing of the outstanding ratings, we didn’t feel that we wanted to initially bucket the jurisdictional assignments.

“We’d rather see how things progress, see if maybe there are any programmes within a jurisdiction that might have some strengths above the established law and if the law does develop then obviously that’s an input that could change over time.”

HSBC Trinkaus analysts, who noted that the methodology only appeared to have been slightly revised, suggested that lower rated issuers, such as some in Portugal and Spain, might benefit from turning to DBRS. They said that while triple-B issuers might not be able to reach triple-A ratings for their covered bonds, those that are only just sub-investment grade rated could hope to achieve single-A ratings for their covered bonds.

Although Monday’s publication referred to European ratings, Gorman said that the methodology would be consistent across the firm and therefore also apply to Canadian programmes. DBRS rates all seven outstanding Canadian covered bond programmes.