DBRS Morningstar Finalises Provisional Ratings on CaixaBank PYMES 11, FT

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional ratings on the following notes issued by CaixaBank PYMES 11, FT (the Issuer):

-- EUR 2,131.5 million Series A Notes rated AA (low) (sf)
-- EUR 318.5 million Series B Notes rated B (sf) (together with the Series A Notes, the Notes)

The transaction is a cash flow securitisation collateralised by a portfolio of secured and unsecured loans and drawdowns of secured lines of credit originated by CaixaBank, S.A. (CaixaBank or the Originator; rated “A” with a Stable trend by DBRS Morningstar) to corporates, small and medium-sized enterprises and self-employed individuals based in Spain. As of 21 October 2019, the transaction’s provisional portfolio included 36,146 loans and drawdowns of lines of credit to 32,864 obligor groups, totalling EUR 2,533.3 million. At closing, the Originator selected the final portfolio of EUR 2.45 billion from the provisional pool.

The rating of the Series A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal maturity date in April 2052. The rating of the Series B Notes addresses the ultimate payment of interest and principal on or before the legal maturity date.

Interest and principal payments on the Notes will be made quarterly on the 22nd of January, April, July and October, with the first payment date on 22 April 2020. The Notes pay a fixed interest rate equal to 0.75% and 0.80% for the Series A Notes and Series B Notes, respectively.

The provisional pool had a relatively high industry concentration and was well diversified in terms of borrowers. There was some borrower concentration in Catalonia (27.1% of the portfolio balance), which is to be expected given that Catalonia is the Originator’s home region. The top ten, 20 and 30 obligor groups represented 5.0%, 8.6% and 11.5% of the portfolio balance, respectively. The top three industry sectors according to DBRS Morningstar’s industry definition were Building and Development, Lodging and Casinos and Farming and Agriculture, representing 21.9%, 9.9% and 8.7% of the portfolio outstanding balance, respectively.

The Series A Notes benefit from 17.7% subordination of the Series B Notes and the reserve fund. The Series B Notes benefit from 4.7% subordination of the reserve fund. The reserve fund was funded through a subordinated loan and is available to cover senior fees and interest and principal on the Series A Notes, and once Series A Notes are fully amortised, interest and principal on the Series B Notes. The cash reserve will amortise subject to the target level being equal to 4.7% of the outstanding balance of the Series A and Series B notes. The Series B Notes interest and principal payments are subordinated to the Series A Notes.

The transaction is exposed to some interest rate risk. Based on the interest rate distribution of the portfolio, DBRS Morningstar assumed a stressed basis of 44 basis points per year, reducing the spread of floating loans from day one.

The ratings are based on DBRS Morningstar’s “Rating CLOs Backed by Loans to European SMEs” methodology and the following analytical considerations:
-- The probability of default (PD) for the portfolio was determined using the historical performance information supplied. DBRS Morningstar compared the internal rating distribution of the portfolio with the internal rating distribution of the loan book and concluded that the portfolio was of marginally better quality than the overall loan book. DBRS Morningstar determined the portfolio PD using the historical performance information supplied. DBRS Morningstar assumed an annualised PD of 0.80% for secured loans, 2.25% for unsecured loans, 2.34% for corporate loans and 1.54% for pre-approved loans.
-- The assumed weighted-average life (WAL) of the portfolio is 3.9 years.
-- The PD and WAL were used in the DBRS Morningstar Diversity Model to generate the hurdle rate for the respective ratings.
-- The recovery rate was determined by considering the market value declines for Spain, the security level and the type of collateral. For the Series A Notes, DBRS Morningstar applied a 61.1% recovery rate for secured loans and a 15.8% recovery rate for unsecured loans. For the Series B Notes, DBRS Morningstar applied an 84.1% recovery rate for secured loans and a 21.5% recovery rate for unsecured loans.
-- The break-even rates for the interest rate stresses and default timings were determined using the DBRS Morningstar cash flow tool.

The transaction structure was analysed in a proprietary excel tool, considering the default rates at which the Notes did not return all specified cash flows.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Rating CLOs Backed by Loans to European SMEs”.

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with 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 these ratings include the parties involved in the ratings, including but not limited to the Originator, CaixaBank, the Issuer, and CaixaBank Titulización S.G.F.T., S.A.U.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

DBRS Morningstar was supplied with one or more third-party assessments.

DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings 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.

These ratings concern a newly issued financial instrument. These are the first DBRS Morningstar ratings on this financial instrument.

This is the first rating action since the Initial Rating Date.

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):

--PD Used: Base case PD of 0.80% for mortgage loans, 2.25% for non-mortgage loans, 2.34% for corporate loans and 1.54% for pre-approved loans, a 10.0% and 20.0% increase on the base case PD.
-- Recovery Rates Used: Base case recovery rate of 27.4% at the AA (low) (sf) and 35.8% at the CCC (sf) stress levels, a 10% and 20% decrease in the base case recovery rate, respectively. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery rate levels.

DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20% would lead to a downgrade of the Series A Notes to A (sf) and a downgrade of the Series B Notes to CCC (high). A hypothetical decrease of the base case recovery rate by 20%, ceteris paribus, would lead to a downgrade of the Series A Notes to A (high) (sf) and would not have impact on the Series B Notes rating and it would remain at B (sf). A scenario combining both an increase in the base case PD by 10% and a decrease in the base case recovery rate by 10% would lead to a downgrade of the Series A Notes to A (low) (sf) and a downgrade of the Series B Notes to CCC (high) (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, Sucursal en España are subject to EU and US regulations only.

Lead Analyst: María López, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 21 November 2019

DBRS Ratings GmbH, Sucursal en España
Calle del Pinar, 5
28006 Madrid
Spain

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 CLOs Backed by Loans to European SMEs
--Legal Criteria for European Structured Finance Transactions
--Interest Rate Stresses for European Structured Finance Transactions
--Rating CLOs and CDOs of Large Corporate Credit
--Cash Flow Assumptions for Corporate Credit Securitizations
--Operational Risk Assessment for European Structured Finance Servicers
--Operational Risk Assessment for European Structured Finance Originators
--European RMBS Insight: Spanish Addendum

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 info@dbrs.com.