DBRS Morningstar Takes Rating Actions on IM Sabadell PYME 11, FT

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on IM Sabadell PYME 11, FT (the Issuer):

-- Series A Notes confirmed at A (high) (sf)
-- Series B Notes upgraded to CCC (high) (sf) from CCC (low) (sf)

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

The rating actions follow an annual review of the transaction and are based on the following analytical considerations:

-- The overall portfolio performance in terms of delinquencies and defaults as of the September 2019 payment date.
-- Base case probability of default (PD), updated recovery rate, and expected loss assumptions on the remaining receivables.
-- The current available credit enhancement available to the rated notes to cover the expected losses at their respective rating levels.

The Issuer is a cash flow securitisation collateralised by a portfolio of bank loans originated and serviced by Banco de Sabadell, S.A. (Sabadell), to self-employed individuals and small and medium-size enterprises (SMEs) based in Spain.

PORTFOLIO PERFORMANCE
The portfolio is performing within DBRS Morningstar’s expectations. As of September 2019, the 90+ delinquency ratio was at 2.2% and the cumulative default ratio was at 1.5%.

PORTFOLIO ASSUMPTIONS
DBRS Morningstar conducted a loan-by-loan analysis on the remaining pool and updated its default rate and recovery assumptions. The base case probability of default (PD) has been maintained at 2.0% for normal loans and 10.1% for refinanced loans.

CREDIT ENHANCEMENT
The credit enhancement available to all rated notes continues to increase as the transaction deleverages. As of the September 2019 payment date, the credit enhancement available to the Series A Notes and Series B Notes was 46.8% and 10.2%, respectively, up from 30.3% and 6.6% one year ago.

Sabadell acts as the account bank for the transaction. Based on the reference rating of Sabadell at A, one notch below DBRS Morningstar’s Long-Term Critical Obligations Rating of A (high), the downgrade provisions outlined in the transaction documents, and structural mitigants, DBRS Morningstar considers the risk arising from the exposure to Sabadell to be consistent with the ratings assigned to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the transaction structure in its proprietary Excel-based cash flow engine.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating 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 the principal methodology.

A review of the transactions 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 “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 servicer and investor reports provided by the Management Company, InterMoney Titulización S.G.F.T., S.A. and a loan-level data from the European DataWarehouse GmbH.

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

At the time of the initial rating, 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 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.

The last rating action on the transaction took place on 19 December 2018, when DBRS Morningstar confirmed the ratings of the Series A and Series B Notes at A (high) (sf) and CCC (low) (sf), respectively.

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 ratings, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

-- PD Rates used: Base case PD of 2.0% for normal loans and 10.1% for refinanced loans, and a 10% and 20% increase on the base case PD.
-- Recovery Rates used: Base case recovery rate of 27.1% at A (high) (sf) rating level, and 34.7% at the CCC (low) (sf) level for the Series A Notes and Series B Notes, respectively, and a 10% and 20% decrease in the base case recovery rates. 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%, ceteris paribus, would lead to a confirmation of the Series A Notes at A (high) (sf) and a hypothetical decrease of the recovery rate by 20, ceteris paribus, would lead to a confirmation of the Series A Notes at A (high) (sf). A scenario combining both a hypothetical increase in the PD by 10% and a hypothetical decrease in the recovery rate by 10%, would also lead to a confirmation of the Series A Notes at A (high) (sf).

For the Series B Notes, DBRS Morningstar concluded that a hypothetical increase of the base case PD by 20%, ceteris paribus, would lead to a downgrade of the Series B Notes to CCC (low) (sf), and a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a confirmation of the Series B Notes at CCC (high) (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%, ceteris paribus, would lead to a downgrade of the Series B Notes to CCC (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: Alfonso Candelas, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 15 December 2017

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
-- Rating CLOs and CDOs of Large Corporate Credit
-- Cash Flow Assumptions for Corporate Credit Securitizations
-- 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 Servicers
-- Master European Structured Finance Surveillance Methodology

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.