DBRS Ratings GmbH (DBRS) confirmed its A (high) ratings on the Cédulas Hipotecarias (CH or Spanish Covered Bonds) that are outstanding under the Cajamar Caja Rural S.C.C. Covered Bonds (Cédulas Hipotecarias - Mortgages) programme (Cajamar CH or the Programme). The confirmations follow the completion of a full review of the Programme. At the same time, DBRS discontinued its rating on Cedulas Hipotecarias - ES0422714024, which matured on 22 November 2018.
The ratings reflect the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) reflective of the likelihood that the source of payments will switch from the Reference Entity to the cover pool (CP). Cajamar Caja Rural, Sociedad Cooperativa de Crédito (Cajamar) is the Issuer and Reference Entity for the Programme. There is no Critical Obligations Rating associated with the Reference Entity and DBRS classifies Spain as a jurisdiction in which covered bonds are a particularly important funding instrument.
-- A Legal and Structuring Framework (LSF) Assessment of “Average” associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of “A”, which is the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L).
-- An LSF-L of A (low).
-- A two-notch uplift for high recovery prospects.
-- A level of overcollateralisation (OC) of 127.3% to which DBRS gives credit, which is the minimum observed OC level during the past 12 months, adjusted by a scaling factor of 0.90.
The transaction was analysed with the DBRS European Covered Bond Cash Flow Tool. The main assumptions focused on the timing of defaults and recoveries of the assets, interest rate stresses and market value spreads to calculate liquidation values on the CP.
Everything else being equal, a one-notch downgrade of the CBAP would lead to a three-notch downgrade of the LSF-L, resulting in a three-notch downgrade of the covered bond ratings. In addition, all else unchanged, the CH ratings would be downgraded if any of the following were to occur: (1) the CPCA were downgraded below “A”; (2) the sovereign rating of the Kingdom of Spain were downgraded below A (low); (3) the LSF assessment associated with the Programme were downgraded; (4) the quality of the CP and the level of OC were no longer sufficient to support a two-notch uplift for high recovery prospects; (5) the relative amortisation profile of the CH and CP were to move adversely; or (6) volatility in the financial markets were to cause the currently estimated market value spreads to increase.
There is EUR 5.25 billion of CH outstanding under the Programme, of which DBRS rates EUR 3.5 billion. As of March 2019, the aggregate balance of mortgages in the CP was EUR 14.18 billion, which resulted in a total estimated OC of 170%. As of March 2019, the eligible CP stood at EUR 9.61 billion, resulting in an eligible OC of 83%.
Spanish covered bonds are backed by the entire mortgage book of the bank, except mortgage loans pledged to securitisations and bonos hipotecarios. As of March 2019, the CP comprised 172,033 mortgage loans with a weighted-average current unindexed loan-to-value ratio of 59.2%, with a 69.6% residential, 25.2% commercial, 3.5% developers and 1.7% land split. It is geographically distributed among Cajamar’s main areas of activity, with the highest concentrations in Andalusia (33.17% by outstanding balance), Community of Valencia (26.09%) and Murcia (17.62%). The pool is 94-months’ seasoned.
As is customary in the Spanish market, CH holders do not receive the benefit of any swap contract to hedge the mismatches between the interest yielded by the CP (96% floating rate linked to different indexes and resets), while all liabilities pay a fixed coupon. All liabilities are denominated in euros, as are all cover pool assets; as such, investors are not currently exposed to any foreign exchange risk.
The DBRS-calculated weighted-average life of the assets is roughly ten years while that of the covered bonds is about 2.7 years. This generates an asset-liability mismatch that is mitigated by the available OC.
DBRS has assessed the LSF related to the Programme as “Average” according to its “Rating and Monitoring Covered Bonds” methodology. For more information, please refer to DBRS’s commentaries “DBRS Assigns Legal and Structuring Framework Assessment to Spanish Mortgage Covered Bonds Programmes” and “Spanish Mortgage Covered Bonds: Legal and Structuring Framework Review”, both available at www.dbrs.com.
For further information on the Programme, please refer to the rating report at www.dbrs.com.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is: “Rating and Monitoring Covered Bonds”.
DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the surveillance section of the principal methodology.
A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.
Other methodologies referenced in this transaction are listed at the end of this press release. These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.
For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: https://www.dbrs.com/research/333487/rating-sovereign-governments.
The sources of data and information used for these ratings include CP stratification tables and historical default data provided by the Issuer that allowed DBRS to further assess the portfolio.
DBRS did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating, DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS considers the data and information available to it for the purposes of providing the rating to be of satisfactory quality.
DBRS does not audit or independently verify the data or information it receives in connection with the rating process.
The last rating action on this transaction took place on 13 July 2018, when DBRS confirmed its ratings on the outstanding DBRS-rated Cajamar CH.
Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.
For further information on DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.
Ratings assigned by DBRS Ratings GmbH, Sucursal en España are subject to EU and US regulations only.
Lead Analyst: Covadonga Aybar, Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 19 July 2013
DBRS Ratings GmbH, Sucursal en España
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DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259
The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.
-- Rating and Monitoring Covered Bonds
-- Rating and Monitoring Covered Bonds Addendum: Market Value Spreads
-- Global Methodology for Rating Banks and Banking Organisations
-- Legal Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- European RMBS Insight Methodology
-- European RMBS Insight: Spanish Addendum
-- Operational Risk Assessment for European Structured Finance Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating CLOs and CDOs of Large Corporate Credit
-- Rating CLOs Backed by Loans to European SMEs
-- Rating Sovereign Governments
A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.
For more information on this credit or on this industry, visit www.dbrs.com or contact us at firstname.lastname@example.org.