In re DBRS

 UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 98636 / September 29, 2023 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-21772 
 
 
In the Matter of 
 
DBRS, Inc. 
 
Respondent. 
 
ORDER INSTITUTING ADMINISTRATIVE 
AND CEASE-AND-DESIST PROCEEDINGS, 
PURSUANT TO SECTIONS 15E(d) AND 21C 
OF THE SECURITIES EXCHANGE ACT OF 
1934, MAKING FINDINGS, AND IMPOSING 
REMEDIAL SANCTIONS AND A CEASE-
AND-DESIST ORDER 
   
 
 
The Securities and Exchange Commission (“Commission”) deems it appropriate, in the 
public interest and for the protection of investors that public administrative and cease-and-desist 
proceedings be, and hereby are, instituted pursuant to Sections 15E(d) and 21C of the Securities 
Exchange Act of 1934 (“Exchange Act”) against DBRS, Inc. (“DBRS” or “Respondent”). 
 
In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (“Offer”) which the Commission has determined to accept. Solely for the purpose of 
these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
which the Commission is a party, and without admitting or denying the findings herein, except as 
to the Commission’s jurisdiction over it and the subject matter of these proceedings, which are 
admitted, Respondent consents to the entry of this Order Instituting Administrative and Cease-and-
Desist Proceedings, Pursuant to Sections 15E(d) and 21C of the Securities Exchange Act of 1934, 
Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (“Order”), as 
set forth below. 
  

2 
 
 
On the basis of this Order and Respondent’s Offer, the Commission finds
1
 that: 
Summary 
1. The implementation of and adherence to established policies, procedures,  and 
methodologies for determining credit ratings is a cornerstone of the legal framework governing 
nationally recognized statistical rating organizations (“NRSROs”). Consequently, among other 
things, NRSROs are required to establish an effective internal control structure governing the 
implementation of and adherence to policies, procedures, and methodologies for determining credit 
ratings. 
2. Between July 2019 and November 2022, DBRS had an ineffective internal control 
structure governing implementation of and adherence to its published procedures and 
methodologies for determining credit ratings for certain commercial mortgage-backed securities 
(“CMBS”) multi-borrower transactions. During this time, DBRS made systematic adjustments to 
credit enhancement levels implied by the results of the quantitative predictive model (the “Insight 
Model”) DBRS used to rate multi-borrower CMBS transactions, in a manner not guided or 
described by DBRS’s published procedures or methodologies for rating multi-borrower 
transactions.  By failing to include guidance for or a description of the systematic adjustments in 
DBRS’s published procedures or methodologies, DBRS’s internal control structure was ineffective 
in governing implementation of and adherence to its published procedures and methodologies for 
determining credit ratings, in violation of Section 15E(c)(3)(A) of the Exchange Act. 
3. Additionally, between November 2019 and March 2020, DBRS disclosed that it 
used a legacy single-asset/single-borrower (“SASB”) methodology to rate three SASB 
transactions, but instead used a key element of a proposed SASB methodology that DBRS had not 
yet approved and adopted. Consequently, DBRS failed to accurately identify the rating 
methodology it used to rate these three SASB transactions and failed to enforce its policies and 
procedures requiring credit ratings to be determined and issued based on approved methodologies. 
These violations also stemmed from DBRS’s ineffective internal control structure. DBRS thereby 
violated Section 15E(c)(3)(A) of the Exchange Act and Rules 17g-7(a)(1)(ii)(B) and 17g-8(a)(1) 
and (2) thereunder. 
 
 
1
  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not 
binding on any other person or entity in this or any other proceeding.  
 

3 
 
Respondent 
4. Respondent is  a Delaware corporation headquartered in New York, New York. 
DBRS has been registered with the Commission as an NRSRO since 2007. On July 2, 2019, DBRS 
was acquired by Morningstar, Inc., the parent of Morningstar Credit Ratings, LLC (“MCR”), after 
which DBRS and MCR integrated their businesses.  
Background 
A. DBRS’s Governance of CMBS Credit Ratings 
5. Since at least July 2019, DBRS has filed with the Commission annual Form 
NRSRO certifications with an Exhibit 2 describing the procedures and methodologies that DBRS 
uses to determine CMBS credit ratings as those published on its website.  
6. These have included procedures and methodologies for rating multi-borrower 
transactions and SASB transactions. DBRS also maintains policies and procedures requiring 
DBRS credit ratings to be determined and issued based on approved methodologies, and policies 
and procedures requiring approval of new and changed methodologies by DBRS’s Structured 
Finance Criteria Committee and Independent Review Function.  
B. DBRS Multi-Borrower Methodology and Insight Model 
7. Since at least July 2019, DBRS has publicly disclosed that it uses its North 
American CMBS Multi-Borrower Rating Methodology (“Multi-Borrower Methodology”) to 
determine credit ratings for CMBS multi-borrower transactions, that is, CMBS transactions 
secured by diversified pools of commercial real estate (“CRE”) assets. These include CRE 
collateralized loan obligation (“CLO”) transactions, conduit/fusion transactions, agency 
multifamily transactions such as the Freddie Mac K series, and others. 
8. Broadly speaking, the Multi-Borrower Methodology states that DBRS analyzes the 
CRE collateral underlying a proposed transaction and the likelihood of potential losses to 
determine the amount of credit enhancement required for each rating category in a proposed 
transaction.  To this end, the Multi-Borrower Methodology describes as a core step in DBRS’s 
credit rating process a “fundamental collateral analysis” on underlying CRE collateral, which 
concludes with DBRS’s estimated net cash flow, a property quality designation, and a sponsor 
strength score.  
9. According to the Multi-Borrower Methodology, these items and other loan-level 
data are used as inputs to the Insight Model, which generates expected loan-level base case 
expected losses that are aggregated to form pool-level base case expected losses. The credit 
enhancement levels that DBRS requires for a transaction are based on these expected pool-level 
base case losses and the applicable multiple range specified for the various tranche ratings by the 
methodology. 

4 
10. The Multi-Borrower Methodology did not describe systematic adjustments to credit 
enhancement levels implied by the results of the Insight Model. 
C. DBRS Made Systematic Adjustments to Credit Enhancement Levels Implied by 
Insight Model Results 
11. Between July 2019 and November 2022, DBRS rating analysts made systematic 
adjustments to the credit enhancement levels implied by the results of the Insight Model for CMBS 
multi-borrower transactions, specifically CRE CLO and agency transactions. 
12. Initially, rating analysts made these systematic adjustments during discussion 
groups, prior to rating committee discussions. Nothing in the Multi-Borrower Methodology guided 
or described such adjustments. 
13. Beginning in approximately March 2021, rating analysts made these adjustments 
for CRE CLO transactions pursuant to internal, nonpublic written guidance (“Quoting Guidance”), 
which prescribed specific adjustments based on Insight Model-implied credit enhancement levels 
for all CRE CLO transactions (see Figure 1). In approximately October 2021, DBRS revised the 
Quoting Guidance to prescribe adjustments for all agency transactions (see Figure 2), and rating 
analysts began making adjustments for agency transactions pursuant to this guidance. The 
adjustments prescribed by the Quoting Guidance applied across the board, formulaically, to all 
CRE CLO and agency transactions in a manner not guided or described by the Multi-Borrower 
Methodology. 
 
     Figure 1: March 2021 Quoting Guidance, CRE CLO tab. 
 

5 
 
     Figure 2: October 2021 Quoting Guidance, Freddie Tab. 
14. Between July 2019 and November 2022, DBRS rating analysts systematically 
increased the credit enhancement levels from those implied by the Insight Model in rating CRE 
CLO transactions and systematically decreased the  credit enhancement levels from those implied 
by the Insight Model in rating agency transactions. 
15. These adjustments were typically hard-coded into spreadsheets and lacked loan-
specific, transaction-specific, or other qualitative explanation akin to adjustments described in the 
Multi-Borrower Methodology. 
16. For CRE CLO transactions, rating analysts simply added percentage points to the 
credit enhancement levels implied by the Insight Model, in accordance with the Quoting Guidance. 
For agency transactions, DBRS rating analysts calculated the average of the credit enhancement 
implied by the Insight model and the low end of the multiple range in the Multi-Borrower 
Methodology, as provided by the Quoting Guidance. The practice of using the low end of the 
multiple range was not described in the Multi-Borrower Methodology, which stated that rating 
analysts generally start at the midpoint of the multiple range: “When applying the multiples to a 
transaction’s base case pool loss, DBRS generally starts at the midpoint of the multiple range for 
each rating level and considers various quantitative and qualitative factors when adjusting up or 
down from the midpoint.” 
17. DBRS issued a new version of its Multi-Borrower Methodology and Insight Model 
in November 2022. The application of these new versions incorporated the effects of the 
systematic adjustments previously made for CRE CLO or agency transactions, as described above. 
DBRS stopped using the Quoting Guidance to rate new transactions once the November 2022 
versions of the Multi-Borrower Methodology and Insight Model were implemented. 
D. DBRS Rated Three SASB Transactions Using a Methodology Other Than the 
Disclosed Methodology 
18. Following Morningstar, Inc.’s July 2019 acquisition of DBRS, DBRS disclosed that 
it would generally use MCR’s then-existing U.S. Single-Asset/Single-Borrower Ratings 

6 
Methodology (“legacy SASB Methodology”) to rate SASB transactions during the entities’ 
integration. 
19. In November 2019, DBRS proposed a new SASB methodology with a request for 
comment. DBRS did not adopt the proposed SASB methodology until March 2020, following 
review and approval by the Structured Finance Criteria Committee and Independent Review 
Function, steps required to implement a methodology under DBRS’s policies and procedures. 
Among other differences, the new SASB methodology adopted in March 2020 contained higher 
loan-to-value (“LTV”) benchmarks, or “hurdles,” for hotels than the legacy SASB Methodology. 
20. Between November 2019 and March 2020, DBRS rated at least three SASB 
transactions involving hotel properties effectively using the LTV benchmarks in the proposed, but 
not yet approved and adopted, SASB methodology. DBRS rating analysts were unable simply to 
change the LTV hurdles coded into their SASB rating spreadsheets, as those fields were locked to 
prevent editing. Instead, analysts introduced new columns in which they pasted the proposed LTV 
hurdles and calculated the difference between the proposed and legacy LTV hurdles. Analysts then 
added that amount to the legacy hurdles that were coded into their SAB rating spreadsheets using 
the one adjustment column that was not locked. 
21. This had the effect of substituting the proposed, but not yet approved and adopted, 
LTV hurdles for those in the legacy SASB methodology. But in its Rule 17g-7 disclosure forms 
and in presale reports for these three transactions, DBRS disclosed that it had used the in-effect 
legacy SASB methodologies to rate the transactions. 
22. The adjustments to incorporate the higher proposed LTV hurdles in the proposed 
SASB methodology were meaningful: they added between 2% and 7% to the credit enhancement 
for investment grade ratings classes. Indeed, their magnitude was greater than the combined effect 
of the property-specific LTV hurdle adjustments that DBRS specifically disclosed in two of its 
presale reports. But DBRS did not disclose its effective use of the proposed LTV hurdles to rate 
these transactions. 
23. Instead, in two of its presale reports, DBRS stated that the legacy SASB 
Methodology applied and generally described “certain adjustments to the LTV hurdles” in its 
SASB model due to lower net cash flow for the asset “than we may have previously concluded” 
resulting from changes to DBRS’s cash flow criteria. DBRS’s presale reports further stated that 
there would likely be no ratings impact on the SASB transactions if the proposed SASB 
methodology was adopted. 
E. DBRS’s Internal Control Structure Was Ineffective in Governing Implementation of 
and Adherence to Published Procedures and Methodologies for Determining Credit 
Ratings 
24. Between July 2019 and November 2022, DBRS had an ineffective internal control 
structure governing implementation of and adherence to its published procedures and 
methodologies for determining credit ratings for certain CMBS multi-borrower transactions, 
specifically CRE CLO and agency transactions. During this time, rating analysts made systematic 

7 
adjustments to credit enhancement levels implied by the results of the Insight Model, including 
pursuant to the Quoting Guidance, even though neither the Multi-Borrower Methodology nor any 
other published procedure guided or described such adjustments. DBRS had no mechanism, such 
as a review of internal guidance documents or a review of analysts’ actual practices, sufficient to 
identify the systematic adjustments or the lack of published guidance for them. 
25. And between November 2019 and March 2020, DBRS rating analysts rated at least 
three SASB transactions involving hotel properties effectively using LTV benchmarks in a 
proposed SASB methodology that had not yet been reviewed and approved by DBRS’s Structured 
Finance Criteria Committee and Independent Review Function, as required to implement a 
methodology under DBRS’s policies and procedures. DBRS’s internal control structure was 
therefore ineffective in governing implementation of and adherence to its published procedures and 
methodologies for determining SASB credit ratings. 
Violations 
26. As a result of the conduct described in Paragraphs 5-25, DBRS willfully
2
 violated 
Section 15E(c)(3)(A) of the Exchange Act by failing to establish, maintain, enforce, and document 
an effective internal control structure governing the implementation of and adherence to its 
policies, procedures, and methodologies for determining the CMBS multi-borrower and SASB 
credit ratings described above. 
27. As a result of the conduct described in Paragraphs 18-23, DBRS willfully violated 
Exchange Act Rules 17g-8(a)(1) and (2) by failing to establish, maintain, enforce, and document 
policies and procedures reasonably designed to ensure that the procedures and methodologies used 
to determine the SASB credit ratings described above were approved, developed, and modified in 
accordance with DBRS’s policies and procedures. 
28. As a result of the conduct described in Paragraphs 18-23, DBRS willfully violated 
Exchange Act Rule 17g-7(a)(1)(ii)(B) by failing to disclose the version of the SASB methodology 
used with respect to credit ratings of the three SASB transactions described above. 
 
2
 “Willfully,” for purposes of imposing relief under Section 15E(d) of the Exchange Act, 
“‘means no more than that the person charged with the duty knows what he is doing.’” Wonsover 
v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 969, 977 (D.C. 
Cir. 1949)). There is no requirement that the actor “also be aware that he is violating one of the 
Rules or Acts.” Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965). The decision in The Robare Group, 
Ltd. v. SEC, which construed the term “willfully” for purposes of a differently structured 
statutory provision, does not alter that standard. 922 F.3d 468, 478-79 (D.C. Cir. 2019) (setting 
forth the showing required to establish that a person has “willfully omit[ted]” material 
information from a required disclosure in violation of Section 207 of the Investment Advisers 
Act of 1940). 

8 
 
In view of the foregoing, the Commission deems it appropriate, in the public interest and 
for the protection of investors to impose the sanctions agreed to in Respondent DBRS’s Offer. 
Accordingly, pursuant to Sections 15E(d) and 21C of the Exchange Act, it is hereby 
ORDERED that: 
A. Respondent DBRS cease and desist from committing or causing any violations and 
any future violations of Section 15E(c)(3)(A) of the Exchange Act and Rules 17g-7(a)(1)(ii)(B) and 
17g-8(a)(1) and (2) thereunder. 
B. Respondent DBRS is censured. 
C. Respondent DBRS shall, within 30 days of the entry of this Order, pay a civil 
money penalty in the amount of $2,000,000 to the Securities and Exchange Commission for 
transfer to the general fund of the United States Treasury, subject to Exchange Act Section 
21F(g)(3). If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. 
§   3717. 
Payment must be made in one of the following ways: 
(1) Respondent may transmit payment electronically to the Commission, which 
will provide detailed ACH transfer/Fedwire instructions upon request;  
(2) Respondent may make direct payment from a bank account via Pay.gov 
through the SEC website at http://www.sec.gov/about/offices/ofm.htm
; or  
(3) Respondent may pay by certified check, bank cashier’s check, or United 
States postal money order, made payable to the Securities and Exchange 
Commission and hand-delivered or mailed to:  
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 
Oklahoma City, OK 73169 
 
Payments by check or money order must be accompanied by a cover letter identifying 
DBRS as a Respondent in these proceedings, and the file number of these proceedings; a copy of 
the cover letter and check or money order must be sent to Osman Nawaz, Chief, Complex 
Financial Instruments Unit, Division of Enforcement, Securities and Exchange Commission, 100 
Pearl Street, Suite 20-100, New York, New York 10004-2616.  
  

9 
D. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 
treated as penalties paid to the government for all purposes, including all tax purposes. To preserve 
the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor Action, it 
shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of any award of 
compensatory damages by the amount of any part of Respondent’s payment of a civil penalty in 
this action (“Penalty Offset”). If the court in any Related Investor Action grants such a Penalty 
Offset, Respondent agrees that it shall, within 30 days after entry of a final order granting the 
Penalty Offset, notify the Commission’s counsel in this action and pay the amount of the Penalty 
Offset to the Securities and Exchange Commission. Such a payment shall not be deemed an 
additional civil penalty and shall not be deemed to change the amount of the civil penalty imposed 
in this proceeding. For purposes of this paragraph, a “Related Investor Action” means a private 
damages action brought against Respondent by or on behalf of one or more investors based on 
substantially the same facts as alleged in the Order instituted by the Commission in this 
proceeding. 
 
 By the Commission. 
 
 
 
 Vanessa A. Countryman 
        Secretary 

UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 98636 / September 29, 2023 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-21772 
 
 
In the Matter of 
 

DBRS, Inc. 
 
Respondent. 
 

ORDER INSTITUTING ADMINISTRATIVE 
AND CEASE-AND-DESIST PROCEEDINGS, 
PURSUANT TO SECTIONS 15E(d) AND 21C 
OF THE SECURITIES EXCHANGE ACT OF 
1934, MAKING FINDINGS, AND IMPOSING 
REMEDIAL SANCTIONS AND A CEASE-
AND-DESIST ORDER 

   
 

 

The Securities and Exchange Commission (“Commission”) deems it appropriate, in the 
public interest and for the protection of investors that public administrative and cease-and-desist 
proceedings be, and hereby are, instituted pursuant to Sections 15E(d) and 21C of the Securities 
Exchange Act of 1934 (“Exchange Act”) against DBRS, Inc. (“DBRS” or “Respondent”). 

 

In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (“Offer”) which the Commission has determined to accept. Solely for the purpose of 
these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
which the Commission is a party, and without admitting or denying the findings herein, except as 
to the Commission’s jurisdiction over it and the subject matter of these proceedings, which are 
admitted, Respondent consents to the entry of this Order Instituting Administrative and Cease-and-
Desist Proceedings, Pursuant to Sections 15E(d) and 21C of the Securities Exchange Act of 1934, 
Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (“Order”), as 
set forth below. 

  



2 

 

 

On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 

Summary 

1. The implementation of and adherence to established policies, procedures, and 
methodologies for determining credit ratings is a cornerstone of the legal framework governing 
nationally recognized statistical rating organizations (“NRSROs”). Consequently, among other 
things, NRSROs are required to establish an effective internal control structure governing the 
implementation of and adherence to policies, procedures, and methodologies for determining credit 
ratings. 

2. Between July 2019 and November 2022, DBRS had an ineffective internal control 
structure governing implementation of and adherence to its published procedures and 
methodologies for determining credit ratings for certain commercial mortgage-backed securities 
(“CMBS”) multi-borrower transactions. During this time, DBRS made systematic adjustments to 
credit enhancement levels implied by the results of the quantitative predictive model (the “Insight 
Model”) DBRS used to rate multi-borrower CMBS transactions, in a manner not guided or 
described by DBRS’s published procedures or methodologies for rating multi-borrower 
transactions.  By failing to include guidance for or a description of the systematic adjustments in 
DBRS’s published procedures or methodologies, DBRS’s internal control structure was ineffective 
in governing implementation of and adherence to its published procedures and methodologies for 
determining credit ratings, in violation of Section 15E(c)(3)(A) of the Exchange Act. 

3. Additionally, between November 2019 and March 2020, DBRS disclosed that it 
used a legacy single-asset/single-borrower (“SASB”) methodology to rate three SASB 
transactions, but instead used a key element of a proposed SASB methodology that DBRS had not 
yet approved and adopted. Consequently, DBRS failed to accurately identify the rating 
methodology it used to rate these three SASB transactions and failed to enforce its policies and 
procedures requiring credit ratings to be determined and issued based on approved methodologies. 
These violations also stemmed from DBRS’s ineffective internal control structure. DBRS thereby 
violated Section 15E(c)(3)(A) of the Exchange Act and Rules 17g-7(a)(1)(ii)(B) and 17g-8(a)(1) 
and (2) thereunder. 

 

 
1  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not 

binding on any other person or entity in this or any other proceeding.  
 



3 

 

Respondent 

4. Respondent is a Delaware corporation headquartered in New York, New York. 
DBRS has been registered with the Commission as an NRSRO since 2007. On July 2, 2019, DBRS 
was acquired by Morningstar, Inc., the parent of Morningstar Credit Ratings, LLC (“MCR”), after 
which DBRS and MCR integrated their businesses.  

Background 

A. DBRS’s Governance of CMBS Credit Ratings 

5. Since at least July 2019, DBRS has filed with the Commission annual Form 
NRSRO certifications with an Exhibit 2 describing the procedures and methodologies that DBRS 
uses to determine CMBS credit ratings as those published on its website.  

6. These have included procedures and methodologies for rating multi-borrower 
transactions and SASB transactions. DBRS also maintains policies and procedures requiring 
DBRS credit ratings to be determined and issued based on approved methodologies, and policies 
and procedures requiring approval of new and changed methodologies by DBRS’s Structured 
Finance Criteria Committee and Independent Review Function.  

B. DBRS Multi-Borrower Methodology and Insight Model 

7. Since at least July 2019, DBRS has publicly disclosed that it uses its North 
American CMBS Multi-Borrower Rating Methodology (“Multi-Borrower Methodology”) to 
determine credit ratings for CMBS multi-borrower transactions, that is, CMBS transactions 
secured by diversified pools of commercial real estate (“CRE”) assets. These include CRE 
collateralized loan obligation (“CLO”) transactions, conduit/fusion transactions, agency 
multifamily transactions such as the Freddie Mac K series, and others. 

8. Broadly speaking, the Multi-Borrower Methodology states that DBRS analyzes the 
CRE collateral underlying a proposed transaction and the likelihood of potential losses to 
determine the amount of credit enhancement required for each rating category in a proposed 
transaction. To this end, the Multi-Borrower Methodology describes as a core step in DBRS’s 
credit rating process a “fundamental collateral analysis” on underlying CRE collateral, which 
concludes with DBRS’s estimated net cash flow, a property quality designation, and a sponsor 
strength score.  

9. According to the Multi-Borrower Methodology, these items and other loan-level 
data are used as inputs to the Insight Model, which generates expected loan-level base case 
expected losses that are aggregated to form pool-level base case expected losses. The credit 
enhancement levels that DBRS requires for a transaction are based on these expected pool-level 
base case losses and the applicable multiple range specified for the various tranche ratings by the 
methodology. 



4 

10. The Multi-Borrower Methodology did not describe systematic adjustments to credit 
enhancement levels implied by the results of the Insight Model. 

C. DBRS Made Systematic Adjustments to Credit Enhancement Levels Implied by 
Insight Model Results 

11. Between July 2019 and November 2022, DBRS rating analysts made systematic 
adjustments to the credit enhancement levels implied by the results of the Insight Model for CMBS 
multi-borrower transactions, specifically CRE CLO and agency transactions. 

12. Initially, rating analysts made these systematic adjustments during discussion 
groups, prior to rating committee discussions. Nothing in the Multi-Borrower Methodology guided 
or described such adjustments. 

13. Beginning in approximately March 2021, rating analysts made these adjustments 
for CRE CLO transactions pursuant to internal, nonpublic written guidance (“Quoting Guidance”), 
which prescribed specific adjustments based on Insight Model-implied credit enhancement levels 
for all CRE CLO transactions (see Figure 1). In approximately October 2021, DBRS revised the 
Quoting Guidance to prescribe adjustments for all agency transactions (see Figure 2), and rating 
analysts began making adjustments for agency transactions pursuant to this guidance. The 
adjustments prescribed by the Quoting Guidance applied across the board, formulaically, to all 
CRE CLO and agency transactions in a manner not guided or described by the Multi-Borrower 
Methodology. 

 
     Figure 1: March 2021 Quoting Guidance, CRE CLO tab. 

 



5 

 
     Figure 2: October 2021 Quoting Guidance, Freddie Tab. 

14. Between July 2019 and November 2022, DBRS rating analysts systematically 
increased the credit enhancement levels from those implied by the Insight Model in rating CRE 
CLO transactions and systematically decreased the  credit enhancement levels from those implied 
by the Insight Model in rating agency transactions. 

15. These adjustments were typically hard-coded into spreadsheets and lacked loan-
specific, transaction-specific, or other qualitative explanation akin to adjustments described in the 
Multi-Borrower Methodology. 

16. For CRE CLO transactions, rating analysts simply added percentage points to the 
credit enhancement levels implied by the Insight Model, in accordance with the Quoting Guidance. 
For agency transactions, DBRS rating analysts calculated the average of the credit enhancement 
implied by the Insight model and the low end of the multiple range in the Multi-Borrower 
Methodology, as provided by the Quoting Guidance. The practice of using the low end of the 
multiple range was not described in the Multi-Borrower Methodology, which stated that rating 
analysts generally start at the midpoint of the multiple range: “When applying the multiples to a 
transaction’s base case pool loss, DBRS generally starts at the midpoint of the multiple range for 
each rating level and considers various quantitative and qualitative factors when adjusting up or 
down from the midpoint.” 

17. DBRS issued a new version of its Multi-Borrower Methodology and Insight Model 
in November 2022. The application of these new versions incorporated the effects of the 
systematic adjustments previously made for CRE CLO or agency transactions, as described above. 
DBRS stopped using the Quoting Guidance to rate new transactions once the November 2022 
versions of the Multi-Borrower Methodology and Insight Model were implemented. 

D. DBRS Rated Three SASB Transactions Using a Methodology Other Than the 
Disclosed Methodology 

18. Following Morningstar, Inc.’s July 2019 acquisition of DBRS, DBRS disclosed that 
it would generally use MCR’s then-existing U.S. Single-Asset/Single-Borrower Ratings 



6 

Methodology (“legacy SASB Methodology”) to rate SASB transactions during the entities’ 
integration. 

19. In November 2019, DBRS proposed a new SASB methodology with a request for 
comment. DBRS did not adopt the proposed SASB methodology until March 2020, following 
review and approval by the Structured Finance Criteria Committee and Independent Review 
Function, steps required to implement a methodology under DBRS’s policies and procedures. 
Among other differences, the new SASB methodology adopted in March 2020 contained higher 
loan-to-value (“LTV”) benchmarks, or “hurdles,” for hotels than the legacy SASB Methodology. 

20. Between November 2019 and March 2020, DBRS rated at least three SASB 
transactions involving hotel properties effectively using the LTV benchmarks in the proposed, but 
not yet approved and adopted, SASB methodology. DBRS rating analysts were unable simply to 
change the LTV hurdles coded into their SASB rating spreadsheets, as those fields were locked to 
prevent editing. Instead, analysts introduced new columns in which they pasted the proposed LTV 
hurdles and calculated the difference between the proposed and legacy LTV hurdles. Analysts then 
added that amount to the legacy hurdles that were coded into their SAB rating spreadsheets using 
the one adjustment column that was not locked. 

21. This had the effect of substituting the proposed, but not yet approved and adopted, 
LTV hurdles for those in the legacy SASB methodology. But in its Rule 17g-7 disclosure forms 
and in presale reports for these three transactions, DBRS disclosed that it had used the in-effect 
legacy SASB methodologies to rate the transactions. 

22. The adjustments to incorporate the higher proposed LTV hurdles in the proposed 
SASB methodology were meaningful: they added between 2% and 7% to the credit enhancement 
for investment grade ratings classes. Indeed, their magnitude was greater than the combined effect 
of the property-specific LTV hurdle adjustments that DBRS specifically disclosed in two of its 
presale reports. But DBRS did not disclose its effective use of the proposed LTV hurdles to rate 
these transactions. 

23. Instead, in two of its presale reports, DBRS stated that the legacy SASB 
Methodology applied and generally described “certain adjustments to the LTV hurdles” in its 
SASB model due to lower net cash flow for the asset “than we may have previously concluded” 
resulting from changes to DBRS’s cash flow criteria. DBRS’s presale reports further stated that 
there would likely be no ratings impact on the SASB transactions if the proposed SASB 
methodology was adopted. 

E. DBRS’s Internal Control Structure Was Ineffective in Governing Implementation of 
and Adherence to Published Procedures and Methodologies for Determining Credit 
Ratings 

24. Between July 2019 and November 2022, DBRS had an ineffective internal control 
structure governing implementation of and adherence to its published procedures and 
methodologies for determining credit ratings for certain CMBS multi-borrower transactions, 
specifically CRE CLO and agency transactions. During this time, rating analysts made systematic 



7 

adjustments to credit enhancement levels implied by the results of the Insight Model, including 
pursuant to the Quoting Guidance, even though neither the Multi-Borrower Methodology nor any 
other published procedure guided or described such adjustments. DBRS had no mechanism, such 
as a review of internal guidance documents or a review of analysts’ actual practices, sufficient to 
identify the systematic adjustments or the lack of published guidance for them. 

25. And between November 2019 and March 2020, DBRS rating analysts rated at least 
three SASB transactions involving hotel properties effectively using LTV benchmarks in a 
proposed SASB methodology that had not yet been reviewed and approved by DBRS’s Structured 
Finance Criteria Committee and Independent Review Function, as required to implement a 
methodology under DBRS’s policies and procedures. DBRS’s internal control structure was 
therefore ineffective in governing implementation of and adherence to its published procedures and 
methodologies for determining SASB credit ratings. 

Violations 

26. As a result of the conduct described in Paragraphs 5-25, DBRS willfully2 violated 
Section 15E(c)(3)(A) of the Exchange Act by failing to establish, maintain, enforce, and document 
an effective internal control structure governing the implementation of and adherence to its 
policies, procedures, and methodologies for determining the CMBS multi-borrower and SASB 
credit ratings described above. 

27. As a result of the conduct described in Paragraphs 18-23, DBRS willfully violated 
Exchange Act Rules 17g-8(a)(1) and (2) by failing to establish, maintain, enforce, and document 
policies and procedures reasonably designed to ensure that the procedures and methodologies used 
to determine the SASB credit ratings described above were approved, developed, and modified in 
accordance with DBRS’s policies and procedures. 

28. As a result of the conduct described in Paragraphs 18-23, DBRS willfully violated 
Exchange Act Rule 17g-7(a)(1)(ii)(B) by failing to disclose the version of the SASB methodology 
used with respect to credit ratings of the three SASB transactions described above. 

 
2 “Willfully,” for purposes of imposing relief under Section 15E(d) of the Exchange Act, 
“‘means no more than that the person charged with the duty knows what he is doing.’” Wonsover 
v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 969, 977 (D.C. 
Cir. 1949)). There is no requirement that the actor “also be aware that he is violating one of the 
Rules or Acts.” Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965). The decision in The Robare Group, 
Ltd. v. SEC, which construed the term “willfully” for purposes of a differently structured 
statutory provision, does not alter that standard. 922 F.3d 468, 478-79 (D.C. Cir. 2019) (setting 
forth the showing required to establish that a person has “willfully omit[ted]” material 
information from a required disclosure in violation of Section 207 of the Investment Advisers 
Act of 1940). 



8 

 

In view of the foregoing, the Commission deems it appropriate, in the public interest and 
for the protection of investors to impose the sanctions agreed to in Respondent DBRS’s Offer. 

Accordingly, pursuant to Sections 15E(d) and 21C of the Exchange Act, it is hereby 
ORDERED that: 

A. Respondent DBRS cease and desist from committing or causing any violations and 
any future violations of Section 15E(c)(3)(A) of the Exchange Act and Rules 17g-7(a)(1)(ii)(B) and 
17g-8(a)(1) and (2) thereunder. 

B. Respondent DBRS is censured. 

C. Respondent DBRS shall, within 30 days of the entry of this Order, pay a civil 
money penalty in the amount of $2,000,000 to the Securities and Exchange Commission for 
transfer to the general fund of the United States Treasury, subject to Exchange Act Section 
21F(g)(3). If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. 
§ 3717. 

Payment must be made in one of the following ways: 

(1) Respondent may transmit payment electronically to the Commission, which 
will provide detailed ACH transfer/Fedwire instructions upon request;  

(2) Respondent may make direct payment from a bank account via Pay.gov 
through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  

(3) Respondent may pay by certified check, bank cashier’s check, or United 
States postal money order, made payable to the Securities and Exchange 
Commission and hand-delivered or mailed to:  

Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 
Oklahoma City, OK 73169 

 
Payments by check or money order must be accompanied by a cover letter identifying 

DBRS as a Respondent in these proceedings, and the file number of these proceedings; a copy of 
the cover letter and check or money order must be sent to Osman Nawaz, Chief, Complex 
Financial Instruments Unit, Division of Enforcement, Securities and Exchange Commission, 100 
Pearl Street, Suite 20-100, New York, New York 10004-2616.  

  

http://www.sec.gov/about/offices/ofm.htm


9 

D. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 
treated as penalties paid to the government for all purposes, including all tax purposes. To preserve 
the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor Action, it 
shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of any award of 
compensatory damages by the amount of any part of Respondent’s payment of a civil penalty in 
this action (“Penalty Offset”). If the court in any Related Investor Action grants such a Penalty 
Offset, Respondent agrees that it shall, within 30 days after entry of a final order granting the 
Penalty Offset, notify the Commission’s counsel in this action and pay the amount of the Penalty 
Offset to the Securities and Exchange Commission. Such a payment shall not be deemed an 
additional civil penalty and shall not be deemed to change the amount of the civil penalty imposed 
in this proceeding. For purposes of this paragraph, a “Related Investor Action” means a private 
damages action brought against Respondent by or on behalf of one or more investors based on 
substantially the same facts as alleged in the Order instituted by the Commission in this 
proceeding. 

 
 By the Commission. 
 
 
 

 Vanessa A. Countryman 
        Secretary 


	UNITED STATES OF AMERICA
	In the Matter of
	DBRS, Inc.
	Respondent.
	A. DBRS’s Governance of CMBS Credit Ratings
	B. DBRS Multi-Borrower Methodology and Insight Model
	C. DBRS Made Systematic Adjustments to Credit Enhancement Levels Implied by Insight Model Results

	D. DBRS Rated Three SASB Transactions Using a Methodology Other Than the Disclosed Methodology
	E. DBRS’s Internal Control Structure Was Ineffective in Governing Implementation of and Adherence to Published Procedures and Methodologies for Determining Credit Ratings