DBRS Morningstar Finalises Provisional Ratings on BBVA Consumer Auto 2020-1, FT

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional ratings on the following series of notes (collectively, the Rated Notes) issued by BBVA Consumer Auto 2020-1, FT (the Issuer):

-- Series A Notes at AA (sf)
-- Series B Notes at A (high) (sf)
-- Series C Notes at BBB (high) (sf)
-- Series D Notes at BB (high) (sf)

DBRS Morningstar does not rate the Series E, the Series F, and the Series Z notes issued in this transaction.

The rating of the Series A Notes addresses the timely payment of interest and the ultimate repayment of principal by the legal final maturity date in January 2036. The ratings on the Series B Notes, Series C Notes and Series D Notes address the ultimate payment of interest and the ultimate repayment of principal by the legal final maturity date.

DBRS Morningstar based its ratings on a review of the following analytical considerations:

-- The transaction’s capital structure, including form and sufficiency of available credit enhancement.
-- Credit enhancement levels are sufficient to support DBRS Morningstar’s projected expected net losses under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms of the notes.
-- The seller’s, originator’s, and servicer’s financial strength and their capabilities with respect to originations, underwriting, and servicing.
-- The other parties’ financial strength with regard to their respective roles.
-- DBRS Morningstar’s operational risk review of Banco Bilbao Vizcaya Argentaria S.A. (BBVA), which it deemed to be an acceptable servicer.
-- The credit quality, diversification of the collateral, and historical and projected performance of the seller’s portfolio.
-- DBRS Morningstar’s current sovereign rating of the Kingdom of Spain at “A” with a Stable trend.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology, and the presence of legal opinions that address the true sale of the assets to the Issuer.

The transaction represents the issuance of Series A Notes, Series B Notes, Series C Notes, Series D Notes, Series E Notes, and Series F Notes backed by a portfolio of approximately EUR 1.1 billion of fixed-rate receivables related to auto loans granted by BBVA (the originator) to private individuals residing in Spain for the acquisition of new or used vehicles. The originator will also service the portfolio. The Series Z Notes funded the cash reserve.

The transaction includes a 19-month revolving period scheduled to end in January 2022. During the revolving period, the originator may offer additional receivables that the Issuer will purchase provided that the eligibility criteria and concentration limits set out in the transaction documents are satisfied. The revolving period may end earlier than scheduled if certain events occur, such as the breach of performance triggers, insolvency of the originator, or replacement of the servicer.

The transaction allocates payments on a combined interest and principal priority of payments and benefits from an amortising EUR 5.5 million cash reserve funded through the subscription proceeds of the Series Z Notes. The cash reserve can be used to cover senior costs and interest on the Series A Notes, Series B Notes, and Series C Notes but cannot be used to offset losses.

The repayment of the notes will start after the end of the revolving period on the first principal payment date in April 2022 on a pro rata basis unless certain events such as breach of performance triggers, insolvency of the originator, or termination of the servicer occur. Under these circumstances, the principal repayment of the notes will become fully sequential, and the switch is not reversible.

The Rated Notes pay interest indexed to three-month Euribor whereas the total portfolio pays a fixed-interest rate.

The interest rate risk arising from the mismatch between the Issuer’s liabilities and the portfolio is hedged through a swap agreement with an eligible counterparty.

BBVA acts as the account bank for the transaction. Based on the DBRS Morningstar rating of BBVA at A (high) (COR at AA (low)), the downgrade provisions outlined in the transaction documents, and structural mitigants inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to BBVA to be consistent with the rating assigned to the Series A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

BBVA acts as the swap counterparty for the transaction. DBRS Morningstar's Long-Term Issuer and Long-Term critical obligation ratings (COR) ratings of BBVA at A (high) and AA (low), respectively, are consistent with the First Rating Threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the transaction structure in Intex DealMaker, considering the default rates at which the Rated Notes did not return all specified cash flows.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many ABS transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus.

On 16 April 2020, the DBRS Morningstar Sovereign group published its outlook on the impact to key economic indicators for the 2020-22 time frame. These scenarios were updated on 1 June 2020. For details see the following commentaries: https://www.dbrsmorningstar.com/research/359679/global-macroeconomic-scenarios-implications-for-credit-ratings and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

For more information on DBRS Morningstar considerations for European ABS transactions and Coronavirus Disease (COVID-19), please see the following commentary: https://www.dbrsmorningstar.com/research/360734.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is “Rating European Consumer and Commercial Asset-Backed Securitisations” (13 January 2020).

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis is based on the worst-case replenishment criteria set forth in the transaction legal documents.

Other methodologies referenced in this transaction are listed at the end of this press release.

These may be found at: http://www.dbrsmorningstar.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.dbrsmorningstar.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for this rating include the Originator, BBVA; the Arranger, Deutsche Bank AG; the Issuer; and Europea de Titulización S.A.

DBRS Morningstar received default vintage data (more than 90 days in arrears and more than 180 days in arrears) from the period Q1 2012 to Q4 2019. The data was split between loan granted for the acquisition of new vehicles and loans granted for the acquisition of used vehicles. DBRS Morningstar received the same set of information for recoveries for more than 90 days in arrears and more than 180 days in arrears.

Data received by DBRS Morningstar was consistently split between defaults and recoveries for new vehicle loans and used vehicle loans, according to transaction documents. Stratification tables and portfolio loan-by-loan data were also provided as at the beginning of May 2020.

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 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.dbrsmorningstar.com.

To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios, as compared with the parameters used to determine the ratings.
-- Probability of default (PD) used: Expected PD of 5.1% and a 21.7%, 18.4%, 11.7% and 8.4%. respectively, for AA (sf), A (high) (sf), BBB (high) (sf) and BB (high) (sf) scenarios, on a 25% and 50% increase in the applicable PD.
-- Recovery rate used: Expected recovery rate of 37%.
-- Loss given default (LGD) used: Expected LGD of 72.3%, 71.0%, 69.2% and 67.3%respectively, for AA (sf), A (high) (sf), BBB (high) (sf) and BB (high) (sf)scenarios, on a 25% and 50% increase in the applicable LGD.

Scenario 1: A 25% increase in the expected default.
Scenario 2: A 50% increase in the expected default.
Scenario 3: A 25% increase in the expected LGD.
Scenario 4: A 25% increase in the expected default and a 25% increase in the expected LGD.
Scenario 5: A 50% increase in the expected default and a 25% increase in the expected LGD.
Scenario 6: A 50% increase in the expected LGD.
Scenario 7: A 25% increase in the expected default and a 50% increase in the expected LGD.
Scenario 8: A 50% increase in the expected default and a 50% increase in the expected LGD.

DBRS Morningstar concludes that the expected ratings under the eight stress scenarios are
-- Series A Notes: A (high) (sf), AA (sf), A (sf), BBB (sf), BB (high) (sf), BBB (sf), BB (high) (sf) BB (low) (sf).
-- Series B Notes: A (high) (sf), A (sf), BBB (high) (sf), BBB (low) (sf), BB (sf), BBB (low) (sf), BB (low) (sf), B (sf).
-- Series C Notes; BBB (sf), BB (high) (sf), BB (high) (sf), BB (low) (sf), B (sf), B (sf),no rating for other scenarios.
-- Series D Notes: BB (low) (sf), BB (high) , B (sf), no rating for other scenarios.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings GmbH, Sucursal en España are subject to EU and U.S. regulations only.

Lead Analyst: María López, Senior Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 8 June 2020

DBRS Ratings GmbH, Sucursal en España
Calle del Pinar, 5
28006 Madrid
Spain
Tel. +34 (91) 903 6500

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500

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.dbrsmorningstar.com/about/methodologies.

--Rating European Consumer and Commercial Asset-Backed Securitisations (13 January 2020)
https://www.dbrsmorningstar.com/research/355533/rating-european-consumer-and-commercial-asset-backed-securitisations.
--Legal Criteria for European Structured Finance Transactions (11 September 2019)
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
--Operational Risk Assessment for European Structured Finance Servicers (28 February 2020)
https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers.
--Operational Risk Assessment for European Structured Finance Originators (28 February 2020)
https://www.dbrsmorningstar.com/research/357430/operational-risk-assessment-for-european-structured-finance-originators.
--Interest Rate Stresses for European Structured Finance Transactions (10 October 2019)
https://www.dbrsmorningstar.com/research/351557/interest-rate-stresses-for-european-structured-finance-transactions.
--Derivative Criteria for European Structure Finance Transactions (26 September 2019)
https://www.dbrsmorningstar.com/research/350907/derivative-criteria-for-european-structured-finance-transactions.
--Rating European Structured Finance Transactions Methodology (28 February 2020)
https://www.dbrsmorningstar.com/research/357428/rating-european-structured-finance-transactions-methodology.

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrsmorningstar.com/research/278375.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.