No magic formula is required for breaking into the oligopolistic credit rating business, but five words are essential if you hope to go global and become a big player: “nationally recognized statistical rating organization.” NRSRO status is awarded by the U.S. Securities and Exchange Commission, and “without it general ratings agencies have little chance of being taken seriously,” says Walter Schroeder, 62, founder and president of Toronto-based Dominion Bond Rating Service.
DBRS is one of just five agencies in the world that have earned the designation and thus, says Schroeder, enough credibility to make expansion possible. Last month, DBRS opened the firm’s first European office in London with the aim of giving the Big Three ratings agencies -- Moody’s, Standard & Poor’s and Fitch -- a run for their money. Now it plans to add offices in Frankfurt, Madrid, Milan and Paris over the next three years.
Schroeder, who spent seven years as a credit analyst and investment banker at Wood Gundy in Toronto before starting DBRS in 1976, first applied for NRSRO status for his firm in 1989. His application lay dormant for years, however, because the SEC wanted to restrict the designation to the companies with which it had long been familiar. That changed with the collapses of WorldCom and Enron, both of which had been declared financially sound by the three top ratings agencies. The SEC concluded that more competition would be healthy.
In 2003, DBRS was named an NRSRO and opened its first international office in Chicago, followed last year by a branch in New York. In two years, U.S. operations have grown from a single analyst to almost 40 as the company has captured 12 percent of the U.S. structured-finance ratings market. With about $250 million in annual sales, says Schroeder, “we are only about a fifth the size of industry leader Moody’s, and we are much smaller than either S&P or Fitch, but with SEC recognition we’ve got the equivalent of David’s slingshot.”
