DBRS Ratings GmbH (DBRS Morningstar) assigned a AA (sf) rating to the Series A Notes issued by BBVA RMBS 19 Fondo de Titulización (the Issuer), a securitisation fund incorporated under Spanish securitisation law.
The rating of the Series A Notes addresses timely payment of interest and ultimate payment of principal on or before the legal final maturity date in August 2062.
The Series A Notes were issued at closing to finance the purchase of a portfolio of first-lien residential mortgage loans originated by BBVA, Catalunya Banc S.A. (CX) and UNIMM Banc (UNNIM). The mortgage loans are secured over residential properties located in Spain.
In 2011 and 2012, CX received capital investment from the fund for Orderly Bank Restructuring (FROB), effectively nationalising the bank. Banco Bilbao Vizcaya Argentaria, S.A. (BBVA; rated A (high) with a Stable trend by DBRS Morningstar) acquired CX on 24 April 2015. Subsequently, CX was absorbed and merged with BBVA. The transaction is managed by Europea de Titulización, S.A., Sociedad Gestora de Fondos de Titulización (the Management Company). BBVA is the servicer of the portfolio.
The Series A Notes benefit from the EUR 200 million (10.0%) subordination of Loan B plus the EUR 100 million (5.0%) reserve fund, which is available to cover senior expenses as well as interest and principal of the Series A
Notes until paid in full. The reserve fund will respectively amortise with a target equal to the lower of 10.0% of the outstanding balance and 2.5% of the initial balance of the Series A Notes and Loan B, subject to a floor of EUR 50 million. The reserve fund will not amortise if certain performance triggers are breached. The Series A Notes will benefit from full sequential amortisation, whereas principal on Loan B will not be paid until the Series A Notes have been redeemed in full. Additionally, the Series A principal will be senior to the Loan B interest payments in the priority of payments.
DBRS Morningstar was provided with the final portfolio equal to EUR 2.1 billion as of 6 November 2019, which consisted of 16,980 loans extended to 16,944 borrowers. The weighted-average (WA) original loan-to-value (LTV) ratio stands at 77.1% whereas the WA current indexed LTV is 70.6%. The mortgage loan portfolio is distributed amongst the Spanish regions of Catalonia (30.6% by current balance), Andalusia (16.2%) and Madrid (15.0%). The mortgage loans in the asset portfolio are almost all owner-occupied with 2.6% classified as second homes. The portfolio contains 99.1% repayment loans, and 14.6% of the loans in the portfolio were granted to self-employed borrowers. As of the 6 November 2019 cut-off date, 1.5% of the mortgage loans were no more than 30 days in arrears.
Over half of the securitised mortgages (55.7%) allow for loan modifications subject to select criteria, depending on the type of mortgage product. The majority of the loans (90.2%) are eligible for margin or interest rate reduction. The allowable loan modifications include (1) change of maturity date, (2) application for payment holidays, (3) change to the type of interest, and (4) change in the amortisation profile. The loan modifications are integrated into the loan contracts and are seen as complementary to the permitted variation under the transaction’s documents. The servicer can grant loan modifications without consent of the management company. DBRS Morningstar stressed the margin of the portfolio to the minimum margin allowed per loan agreement and extended the maturity to the longest possible date in its cash flow analysis for 4% of the portfolio.
The transaction’s account bank agreement and respective replacement trigger require BBVA acting as the treasury account bank to find (1) a replacement account bank or (2) an account bank guarantor upon loss of a BBB (high) account bank applicable rating. The DBRS Morningstar Critical Obligation Rating (COR) of BBVA is AA (low), while DBRS Morningstar’s rating for BBVA Long Term Senior Debt and Issuer rating is at A (high) (as of the date of this press release). The account bank applicable rating is the higher of one notch below the BBVA COR and BBVA Long Term Senior Debt rating.
Currently, 41.6% of the loans pay a fixed rate of interest. In comparison, the notes pay an interest rate linked to three-month Euribor. The Issuer’s fixed-floating risk exposure is hedged through an interest rate swap agreement that references the total interest earned on the mortgage loans and pays the Issuer the WA interest rate of the bonds plus 0.4% multiplied by the performing balance of the collateral (the notional amount).
DBRS Morningstar based its rating on the following analytical considerations:
--The transaction capital structure as well as form and sufficiency of available credit enhancement to support DBRS Morningstar’s projected cumulative losses under various stressed scenarios.
--The credit quality of the portfolio and DBRS Morningstar’s qualitative assessment of BBVA’s capabilities with regard to originations, underwriting and servicing. DBRS Morningstar was provided with BBVA’s historical mortgage performance data, as well as loan-level data for the mortgage portfolio. DBRS Morningstar estimated stress-level probability of default (PD), loss given default (LGD) and expected loss levels on the mortgage portfolio, which were used as inputs into the cash flow engine. The mortgage portfolio was analysed in accordance with DBRS Morningstar’s “European RMBS Insight Methodology” and the “European RMBS Insight: Spanish Addendum”.
--The transaction’s ability to withstand stressed cash flow assumptions and repay the noteholders according to the terms and conditions of the notes according to the terms of the transaction documents. The transaction structure was analysed using Intex DealMaker. DBRS Morningstar considered additional sensitivity scenarios of 0% conditional repayment rate (CPR) stress.
--The transaction parties’ financial strength to fulfil their respective roles.
--The transaction’s legal structure and its consistency with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology as well as the presence of the appropriate legal opinions that address the assignment of the assets to the Issuer.
--DBRS Morningstar’s sovereign rating on the Kingdom of Spain of “A” with a Positive trend as of the date of this press release.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the rating is: “European RMBS Insight Methodology and the European RMBS Insight: Spanish Addendum”.
DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.
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 “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for this rating include BBVA.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
DBRS Morningstar was supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS Morningstar considers the data and information available to it for the purposes of providing this rating to be of satisfactory quality.
DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating process.
This rating concerns a newly issued financial instrument. This is the first DBRS Morningstar rating on this financial instrument.
Information regarding DBRS Morningstar ratings, including definitions, policies and methodologies, is available on www.dbrs.com.
To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):
In respect of the Series A notes, the PD of 25.8% and LGD of 40.8%, corresponding to a AA (sf) stress scenario, were stressed assuming 25% and 50% increase on the PD and LGD:
-- A hypothetical increase of the PD of 25%, ceteris paribus, would lead to a downgrade to A (sf).
-- A hypothetical increase of the PD of 50%, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- A hypothetical increase of the LGD of 25%, ceteris paribus, would lead to a downgrade to A (high) (sf).
-- A hypothetical increase of the LGD of 50%, ceteris paribus, would lead to a downgrade to A (sf).
-- A hypothetical increase of the PD of 25% and LGD by 25%, ceteris paribus, would lead to a downgrade to A (low).
-- A hypothetical increase of the PD of 25% and LGD by 50%, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- A hypothetical increase of the PD of 50% and LGD by 25%, ceteris paribus, would lead to a downgrade to BBB (sf).
-- A hypothetical increase of the PD of 50% and LGD by 50%, ceteris paribus, would lead to a downgrade to BBB (sf).
For further information on DBRS Morningstar 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 are subject to EU and US regulations only.
Lead Analyst: Ronja Dahmen, Assistant Vice President, Global Structured Finance
Rating Committee Chair: Christian Aufsatz, Managing Director, Head of European Structured Finance
Initial Rating Date: 26 November 2019
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.
--European RMBS Insight Methodology
--European RMBS Insight: Spanish Addendum
--Legal Criteria for European Structured Finance Transactions
--Derivative Criteria for European Structured Finance Transactions
--Interest Rate Stresses for European Structured Finance Transactions
--Operational Risk Assessment for European Structured Finance Servicers
--Operational Risk Assessment for European Structured Finance Originators
A description of how DBRS Morningstar 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 email@example.com.