In Q1 2024, Morningstar Credit reported revenues of $60.3 million, an increase of 29% from Q1 2023, but roughly flat (-2%) compared to Q4 2023. We’d note that historically the fourth quarter has often been a relatively strong quarter for credit agency transaction-based revenues, while the first quarter has often been closer to average. You’re also correct that the sequential trend differed from our largest competitors’, who experienced stronger growth compared to Q4 2023. On a sequential basis, we saw increases in Canada, relatively flat revenue in the U.S., and lower revenue in Europe. Revenue related to fundamental ratings (corporates and financial institutions) increased modestly from Q4 2023 to Q1 2024, while revenue related to structured finance ratings activity decreased.
The divergence in growth reflects differences in the mix of Morningstar DBRS credit ratings activity compared to that of our larger peers. First, a smaller proportion of Morningstar DBRS’ revenue (37% in Q1 2024) is attributable to fundamental ratings. A major driver of our largest competitors’ results on a year-over-year and quarter-over-quarter basis was an increase in corporate ratings revenue. This growth was driven by increased ratings activity in U.S. investment-grade and high-yield corporate debt, and we have a smaller share of these areas outside of Canada.
Even within structured finance, which accounted for 56% of Morningstar DBRS revenue in Q1 2024, we have a different mix of business than our competitors. Morningstar DBRS commercial and residential mortgage-backed securities ratings revenue increased by double digits in Q1 2024 on a sequential basis. However, we have limited exposure to collateralized loan obligations, which saw strong growth in the quarter, driven in part by refinancing-related ratings activity which typically goes to the ratings provider on the original transaction. Meanwhile, in the asset-backed securities (ABS) sector, Morningstar DBRS had limited exposure to securities backed by prime auto loans and credit cards, which were a major driver of issuance in the sector in Q1 2024. ABS-related revenue decreased meaningfully on a sequential basis compared to a particularly strong Q4 2023 when Morningstar DBRS benefited from issuance in so-called “esoteric” ABS and student loan ABS, areas where we’re more active.
Despite the first quarter trend, we continue to see opportunity for mid-sized credit rating agencies such as Morningstar DBRS to gain market coverage, with good growth opportunities in areas including private credit and esoteric asset-backed securities, where we believe we’re better able to compete with the larger credit agencies compared to the public corporate bond markets with its prevailing index eligibility guidelines.