Walter Schroeder founded DBRS (originally known as Dominion Bond Rating Service Ltd.) in 1976.DEBORAH BAIC/The Globe and Mail
DBRS Ltd. is calling on an old friend to help shepherd the Canadian credit rating agency into its new phase of global expansion.
Richard Venn, a Canadian Imperial Bank of Commerce veteran who has long known DBRS's founder, Walter Schroeder, has replaced him as chairman. Mr. Venn's entry comes just a few weeks after the deal to sell the company to U.S. private equity firms officially closed.
After months of hunting for a suitable buyer, Mr. Schroeder entrusted Carlyle Group LP and Warburg Pincus LLC with a majority stake in the business late last year. The deal for DBRS, which is the fourth-largest rating agency in the world, was reportedly worth about $500-million.
The company is now focused on international growth, particularly in the United States and Europe.
Mr. Venn remembers first encountering Mr. Schroeder, who was an analyst, in the summer of 1974. Mr. Venn was just beginning his career and working as a summer student in corporate finance at brokerage and investment banking firm Wood Gundy.
"I got to know Walter because he'd be on the trading floor with his binder of ratings of commercial paper," Mr. Venn said from his new office in DBRS's Toronto headquarters, emblazoned with the company's red logo.
"He and I became friends back then. This is like a return to my roots."
Mr. Schroeder went on to found DBRS in 1976, while Mr. Venn was hired full time by Wood Gundy, which would be acquired by CIBC in 1988. Mr. Venn went on to lead CIBC's investment banking and merchant banking operations. Over the years he'd run into Mr. Schroeder, and later DBRS's analysts.
After moving through several leadership positions at the bank, Mr. Venn retired from CIBC in January.
Now he wants to bring his experience and local connections to DBRS to strengthen the firm's relationships with clients – particularly Canadian ones, who know the brand best and currently make up the bulk of revenues. DBRS's chief executive officer, Daniel Curry, is based in the firm's New York office.
DBRS's global market share of about 2 to 2.5 per cent makes it the underdog against Moody's Investors Service Inc., Standard & Poor's Corp. and Fitch Ratings Inc., which together account for 97 per cent of the business. So DBRS is targeting new types of ratings, looking beyond the competitive corporate debt area.
One growing space is rating the financing model of public-private partnerships, where Canada is a global leader. As governments look to build new infrastructure such as toll roads, bridges or hospitals with private-market investors such as insurance companies, the rating agencies review the projects. The rating is a tool used by investors to decide whether to provide financing.
And as Canadian institutional investors such as pension funds look to invest in more infrastructure projects around the world, DBRS hopes to follow them.
Already DBRS has been raising its profile, rating U.S. commercial and residential mortgage-backed securities.
Mr. Venn says there are opportunities to rate new debt being packaged and sold in Europe's growing securitization market, which he says is less developed than the United States. The market has been slowly recovering new issuance volumes amid new market regulations in the years since the financial crisis.
"Success would be for us to be rating more companies in more product categories," Mr. Venn said.
To get there, Mr. Venn says the firm will need to innovate, but also be patient. "One thing about capital markets is they change, and we can't just try to expand into products or with issuers that don't cede any value to us."
DBRS was once bitten by expanding into rating products no one else did. While all rating agencies were challenged by the financial crisis, DBRS was the only one to place high ratings on $33-billion worth of third-party asset-backed commercial paper (ABCP) in 2007. The firm cut staff to weather the crisis, though it has since built its offices back up.
Now DBRS is focused on growing. Both U.S. private equity firms have pledged to invest in the company, including hiring new professionals and potentially adding new international offices. This would build on the growth of the past decade, as DBRS expanded into the United States in 2003. It also re-established a regional office in London in 2010 with about 75 staff there to serve clients in Europe, where it is growing the fastest.
But DBRS needs more than deep-pocketed backers."They bring more than simply money, they bring a series of relationships," Mr. Venn said. "They are well connected in the U.S. and Europe to actually bring both credibility and relationships to DBRS as it tries to expand its product offering and client list."
Mr. Venn already had a friendly relationship with Olivier Sarkozy, head of the global financial services group at Carlyle Group, from his time at CIBC.
Mr. Sarkozy has worked on several multibillion-dollar bank deals, including CIBC's $2.9-billion recapitalization in early 2008 caused by an exposure to the collapsing subprime mortgage market. More recently, he has gotten to know Michael Martin, managing director of financial services at Warburg Pincus. So when he was approached about filling the chair's seat, it was an easy decision.
Mr. Venn wants DBRS to be bolder, getting in front of more clients and spreading its research to a wider group of people. He said DBRS intends to talk to Minister of Finance Joe Oliver about getting more finance ministers around the world to turn to the Canadian agency as an alternative to the U.S. Big Three. "Rating agency people tend to be very conservative," Mr. Venn said. "We're trying to make the case to American investment banks and to Canadians that we'll help you with your investor base – we're making the 'team Canada' pitch."