DBRS Ratings GmbH (DBRS Morningstar) assigned a provisional rating of AA (sf) to the Class A notes to be issued by Rural Hipotecario XIX, Fondo de Titulización (the Issuer), a securitisation fund incorporated under Spanish securitisation law.
DBRS Morningstar does not rate the Class B notes of the Issuer.
The rating of the Class A notes addresses timely payment of interest and ultimate payment of principal on or before the legal final maturity date in August 2058.
The notes to be issued will fund the purchase of a portfolio of first-lien residential mortgage loans originated by Caja Rural de Aragon, S.C.C., Caja Rural Central, S.C.C., Caja Rural de Zamora, S.C.C., and Cajasiete, Caja Rural, S.C.C. The mortgage loans are secured over residential properties located in Spain. Europea de Titulización, S.A., Sociedad Gestora de Fondos de Titulización (the Management Company) manages the transaction. Caja Rural de Aragon, S.C.C., Caja Rural Central, S.C.C., Caja Rural de Zamora, S.C.C. and Cajasiete, Caja Rural, S.C.C. will act as servicers of the relevant portfolio. If the servicers are disrupted, Banco Cooperativo will step in and assume this role.
DBRS Morningstar was provided with the provisional portfolio equal to EUR 483.7 million as of 19 May 2020, which consisted of 6,176 loans extended to 6,133 borrowers. The weighted-average (WA) current loan-to-value (LTV) ratio stands at 60.8% whereas the WA current indexed LTV calculated by DBRS Morningstar is 63.6% with a WA seasoning of 4.9 years. Almost all the loans included in the portfolio (98.0%) are floating-rate loans linked to the 12-month Euribor and 2.0% of the portfolio’s balance are fixed-rate loans that will change to floating rate in approximately 11 months on a WA basis. The notes pay a floating rate of interest linked to three-month Euribor. 3.27% of the portfolio’s balance are loans that were granted a payment holiday on both interest and principal for a period of three months. The current WA interest rate of the portfolio is 1.352% and the WA margin of the floating-rate loans is 1.537%. The repayment type for all the loans in the portfolio is French amortisation.
The mortgage loan portfolio is distributed amongst the Spanish regions of Canary Islands (34.8% by current balance), Castile-Leon (26.7%) and Aragon (20.7%). The majority of the mortgage loans in the asset portfolio are owner-occupied with 8.4% classified as second homes and 0.6% classified as investment. 22.9% of the portfolio are loans that were granted to self-employed borrowers. No loans in the portfolio have been in arrears longer than three months.
Over half of the securitised mortgages (59.5%) allow for a reduction in the margin subject to select criteria.
The servicer can grant loan modifications without consent of the management company; these include the possibility to extend the maturity date, allow payment holidays for up to 12 months and reduce the margin on loans subject to certain limits. To account for the these loan modifications in its cash flow analysis, DBRS Morningstar extended the maturity to the longest possible date for 10% of the portfolio, stressed the margin of the portfolio to the minimum margin allowed per loan agreement, and accounted for 10% of the portfolio having a 12-month principal payment holiday.
The Class A notes benefit from the EUR 42.5 million (10.5%) subordination of the Class B notes plus the EUR 18.18 million (4.5%) reserve fund, which is available to cover senior expenses as well as interest and principal of the Class A notes until they are paid in full. The reserve fund will amortise with a target equal to the lower of 9.0% of the outstanding balance and 4.5% of the initial balance of the Class A notes and Class B notes, respectively, subject to a floor of EUR 9.09 million. The reserve fund will not amortise if certain performance triggers are breached. The Class A notes will benefit from full sequential amortisation, whereas principal on the Class B notes will not be paid until the Class A notes have been redeemed in full. Additionally, the Class A principal will be senior to the Class B interest payments in the priority of payments.
The transaction’s account bank agreement and respective replacement trigger require Santander, acting as the treasury account bank, to find (1) a replacement account bank or (2) an account bank guarantor upon loss of a A (low) account bank applicable rating. The DBRS Morningstar Critical Obligations Rating (COR) of Santander is AA (low), while DBRS Morningstar’s Long Term Senior Debt and Issuer rating on Santander 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 Santander COR and Santander`s Long Term Senior Debt rating.
The provisional rating assigned to the Class A notes addresses the timely payment of interest and ultimate payment of principal on or before the final maturity date.
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 Caja Rural de Aragón, Cajasiete Caja Rural, Caja Rural Central y Caja Rural de Zamora’s capabilities with regard to originations, underwriting, and servicing.
-- DBRS Morningstar’s 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 cash flows were 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 Stable trend as of the date of this press release.
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 RMBS, some meaningfully. The rating is based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar increased the expected default rate for self-employed borrowers, assumed a moderate decline in residential property prices, and considered in its cash flow analysis the payment holidays that are reported for the provisional portfolio.
The DBRS Morningstar Sovereign group released on 16 April 2020 a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were updated on 1 June 2020. For details see the following commentaries: https://www.dbrsmorningstar.com/research/361867/global-macroeconomic-scenarios-june-update 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.
On 5 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect the ratings of DBRS Morningstar-rated RMBS transactions in Europe. For more details please see https://www.dbrsmorningstar.com/research/360599/european-rmbs-transactions-risk-exposure-to-coronavirus-covid-19-effect.
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.
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.
All figures are in euros unless otherwise noted.
The principal methodologies applicable to the rating are: “European RMBS Insight Methodology” (2 April 2020) and the “European RMBS Insight: Spanish Addendum” (10 July 2019).
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 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 Europea de Titulización as well as the four originators Caja Rural de Aragón, Cajasiete Caja Rural, Caja Rural Central, and Caja Rural de Zamora. This includes a loan-by-loan data tape as of 19 May 2020. In addition, DBRS Morningstar received past deal three months plus and 18 months plus delinquency data, past deal three months plus and 18 months plus recovery data, and past deals aggregated prepayment data of previous Rural Hipotecario, Fondo de Titulización transactions issued since 2004 that included one or more of the originators of this transaction.
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.dbrsmorningstar.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 Class A notes, the PD and LGD at the AA (sf) stress scenario of 24.6% and 46.0%, respectively, were stressed assuming a 25% and 50% increase on both the PD and LGD.
DBRS Morningstar concludes the following impact on the Class A notes:
-- 25% increase of the PD, ceteris paribus would lead to a downgrade to A (high) (sf)
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to A (high) (sf)
-- 25% increase of the LGD, ceteris paribus would lead to a downgrade to A (high) (sf)
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to A (high) (sf)
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to A (low) (sf)
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (high) (sf)
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (high) (sf)
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (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 are subject to EU and U.S. regulations only.
Lead Analyst: Hrishikesh Oturkar, Senior Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 19 June 2020
DBRS Ratings GmbH
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrsmorningstar.com/about/methodologies.
-- European RMBS Insight Methodology (2 April 2020) and European RMBS Insight Model v 22.214.171.124. https://www.dbrsmorningstar.com/research/359192/european-rmbs-insight-methodology
-- European RMBS Insight: Spanish Addendum” (10 July 2019)
-- 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
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 email@example.com.