NEW YORK--(EON: Enhanced Online News)--Asset Backed Alert published an article on October 18, 2013 highlighting Kroll Bond Rating Agency (KBRA) as a mainstream player in the Structured Finance space:
“It was harder for Fitch to get people to change back then, but they opened the door”
Kroll continues to rack up structured product rating mandates with increasing frequency, reinforcing perceptions that the agency has won widespread acceptance from issuers and investors alike. While Kroll has been evaluating securitizations since early 2012, it didn’t make a real dent in the rating-agency league tables until the first half of this year — when it graded a combined 5% of asset- and mortgage-backed bond deals in the U.S. Since then, the shop has continued to build momentum amid a buzz that it has crossed the threshold into legitimacy. That has come as a surprise to many in the industry, given that Fitch needed much more time to gain a similar level of acceptance in the 1990s. “It took Fitch a hell of a lot longer to become a legitimate player,” one source said. “Most investors will take Kroll now, especially on a mortgage deal.” Indeed, much of Kroll’s presence in the market involves home-loan securitizations and so-called re-Remics. The agency already had surpassed Moody’s to become the number-four agency in the sector at midyear. And its growth has become even more pronounced in the three months since then, with its year-to-date tally doubling to encompass 17 deals for $7.9 billion — not far behind DBRS ($10.9 billion), Fitch ($9.6 billion) and S&P ($8.9 billion).Kroll’s gains on the mortgage-bond side in part reflects lingering skepticism of Moody’s and S&P in the wake of the credit crisis, given that those agencies assigned top grades to numerous deals that went bust. Rating methods also have played a role, as Kroll was able to come up with its approach from scratch. In particular, it placed less emphasis on the risk of earthquakes in California than Moody’s and S&P, resulting in lower credit-enhancement requirements that proved appealing to issuers. While S&P adjusted its methods in November 2012 and since has regained some volume, Moody’s has stood firm and seen its mortgage-bond business suffer — with just $3.5 billion of year-to-date assignments, according to Asset-Backed Alert’s ABS Database.
Kroll’s gains haven’t been limited to mortgage deals. It has graded $10.7 billion of fresh asset-backed bond deals this year, up from $5.5 billion at midyear. Although that’s still only good for fifth place behind S&P, Fitch, Moody’s and DBRS, the recent acceleration supports the idea that issuers and investors have become more comfortable with the shop. In a particular stamp of approval, issuers in some cases have hired Kroll as the “number-two” agency on their deals alongside Moody’s or S&P — as opposed to engaging it for a third grade. Case in point: S&P and Kroll alone reviewed last month’s $636.2 million aircraft-lease securitization from Avolon Aero- space. Kroll also has graded container-lease bonds and has fared particularly well when it comes to subprime auto-loan deals, where its latest assignments involved offerings that hit the market this week from CarFinance Capital and Flagship Credit.
How has Kroll done it? Mimicking an approach that Fitch employed in its early days, the firm has lured some clients by offering fee discounts. It also has benefitted from years of efforts by Fitch in the 1990s to convince investors to re-write guidelines that required them to buy bonds only with ratings from Moody’s and S&P. “It was harder for Fitch to get people to change back then, but they opened the door,” another source said. “It’s also easier today for Kroll given the problems the rating agencies had during the credit crisis. People wanted to hear from [Kroll].”
Leading Kroll’s effort are Glenn Costello and Kim Diamond. Costello, a former Fitch executive, heads ratings of asset- and mortgage-backed securities. Kim Diamond, an ex-S&P official, oversees all structured-finance activities.
About Kroll Bond Rating Agency
KBRA was established in 2010 by Jules Kroll to restore trust in credit ratings by creating new standards for assessing risk and by offering accurate, clear and transparent ratings. KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).