Morningstar DBRS Dominates Canadian Credit Ratings Amid Surge in Single-Rated Bonds
In the Canadian corporate bond market, one firm consistently assigns more favorable credit grades than its major competitors: Morningstar DBRS. On average, its ratings are a full notch higher than those from S&P Global Ratings, Moody’s Ratings, and Fitch Ratings. This trend has become particularly pronounced as companies increasingly issue bonds with only a single credit rating, a departure from the traditional norm of two or three ratings.
Surge in Single-Rated Deals and DBRS Market Share
In 2025, there were 111 single-rated bond deals in Canada, exceeding the combined total from the previous two years, with several more recorded in January. Data compiled by Bloomberg reveals that DBRS handled more than 80% of these transactions. This surge has solidified DBRS's dominance in the Canadian market and boosted revenue for its credit division, which is now the fastest-growing business line for its parent company, Morningstar Inc.
Concerns Over Ratings Shopping and Market Risks
As the Canadian bond market heats up, with cash-flush investors taking on more risk—including purchasing bonds lacking at least two independent ratings—concerns are mounting. Critics warn that DBRS may be fueling a credit boom that could lead to excesses and future losses. This mirrors global anxieties in frothy credit markets, where regulators and investors have cautioned against the revival of ratings shopping, a practice where borrowers select raters with the most optimistic outlooks, which contributed to past financial crises.
Bill Harrington, a senior fellow at the nonprofit Croatan Institute in New York and a former Moody’s analyst, notes, "One way to win business is just to give better ratings." Upon reviewing Canadian data, Harrington observed similarities to ratings shopping seen elsewhere, warning, "The damage typically shows up when things go wrong."
DBRS Defends Its Ratings Methodology
Executives at DBRS have expressed confidence in their analysts' ratings and methods. Alan Reid, group managing director and global head of fundamental credit ratings at the firm, argued that inflating ratings would be self-defeating, as it would damage the firm's market reputation. "You’re not going to be credible when you give away higher ratings. That just doesn’t work," Reid stated. "Whether our ratings are—for that matter, any rating agency’s ratings are—higher or lower, that doesn’t mean that they’re wrong."
Reid pointed to a DBRS report showing that credit ratings on bonds, including sovereigns and public finance, issued from 1976 through 2024 performed as expected, with defaults increasing as debt grades worsened. Richard Sibthorpe, head of Canada at DBRS, emphasized their deep understanding of the Canadian market, stating, "We have broad, consistent, long-standing coverage of Canada and understand the Canadian market deeply."
Current Market Context and Default Rates
Defaults have been rare in Canada's US$440 billion corporate bond market, with only a handful occurring in recent years, according to Bloomberg data. However, the shift towards single-rated bonds and the dominance of DBRS raise questions about potential vulnerabilities. As investors continue to seek higher yields in a competitive environment, the practice of ratings shopping could amplify risks if economic conditions deteriorate.
This development highlights ongoing debates about credit rating integrity and market stability in Canada's financial sector, with implications for investors, regulators, and corporate borrowers alike.
