DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on CaixaBank PYMES 8, FT (the Issuer):
-- Series A Notes upgraded to A (high) (sf) from A (sf)
-- Series B Notes confirmed at CCC (low) (sf)
The rating on the Series A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal maturity of the notes in January 2054. The rating on the Series B Notes addresses the ultimate payment of interest and the ultimate payment of principal on or before the legal maturity.
The rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- The portfolio performance, in terms of level of delinquencies and defaults, as of the April 2020 payment date.
-- Base case probability of default (PD) and default and recovery rates on the receivables.
-- The current available credit enhancement to the notes to cover expected losses assumed in line with the current rating levels.
-- Current economic environment and sustainable performance assessment, as a result of the Coronavirus Disease (COVID-19) outbreak.
The Issuer is a cash flow securitisation collateralised by a portfolio of bank loans originated and serviced by CaixaBank, S.A. (CaixaBank) to self-employed individuals and small and medium-size enterprises (SMEs) based in Spain. The transaction closed in November 2016.
The portfolio is performing within DBRS Morningstar’s expectations. As of March 2020, the 90+ delinquency ratio was 1.5%, up from 1.1% in March 2019. The cumulative default ratio was 1.1% in March 2020, up from 0.8% one year ago.
PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis on the remaining pool of receivables and updated its default rate and recovery assumptions on the outstanding portfolio to 29.9% and 26.9%, respectively, at the A (high) (sf) rating level, and to 8.2% and 32.7%, respectively, at the CCC (low) (sf) rating level. The base case PD has been updated to 2.6% following COVID-19 adjustments.
The credit enhancements available to the rated notes have continued to increase as the transaction deleverages. As of the April 2020 payment date, the credit enhancements available to the Series A Notes and Series B Notes were 44.5% and 8.7%, respectively (up from 33.6% and 8.0%, respectively, as of the April 2019 payment date). Credit enhancement is provided by subordination of the Series B Notes and a reserve fund. The reserve fund is available to cover senior expenses as well as missed interest and principal payments on the Series A Notes and also on the Series B Notes once the Series A Notes have paid in full. The increase in the credit enhancement prompted the confirmation and upgrade of the ratings.
CaixaBank acts as the account bank for the transaction. Based on the account bank reference rating of CaixaBank at A (high), one notch below its DBRS Morningstar Long-Term Critical Obligation Rating of AA (low), the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank 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. However, the downgrade provisions outlined in the transaction documents do not fully de-link the Series A Notes rating from the rating of the account bank. In other words, a material downgrade of the account bank’s ratings could lead to a downgrade of the Series A Notes.
DBRS Morningstar analysed the transaction structure in its proprietary Excel-based cash flow engine.
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 payment holidays and delinquencies may arise in the coming months for many SME 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.
For this transaction DBRS Morningstar increased the expected default rate for obligors in certain industries based on their perceived exposure to the adverse disruptions of the coronavirus.
On 16 April 2020, the DBRS Morningstar Sovereign group released 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. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.
On 18 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated Structured Credit transactions in Europe. For more details please see https://www.dbrsmorningstar.com/research/361098/european-structured-credit-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.
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 methodology applicable to the rating is: “Rating CLOs Backed by Loans to European SMEs” (8 July 2019).
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 transaction 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 at: https://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 these ratings include reports and information provided by CaixaBank Titulización, S.G.F.T., S.A.U. and loan-by-loan 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 ratings, 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 this transaction took place on 28 June 2019, when DBRS Morningstar confirmed its rating on the Series A Notes at A (sf) and upgraded its rating on the Series B Notes to CCC (low) (sf) from CC (sf).
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies is available at www.dbrsmorningstar.com.
To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios, as compared with the parameters used to determine the rating (the Base Case):
-- PD Rates Used: Base case PD of 2.6%, a 10% and 20% increase on the base case PD.
-- Recovery Rates Used: Base case recovery rates of 26.9% at the A (high) (sf) stress level and 32.7% at the CCC (low) (sf) level, and a 10% and 20% decrease in the base case recovery rates.
DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20% or 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) and to a downgrade of the Series B Notes to CC (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 also lead to a confirmation of the Series A Notes at A (high) (sf) and to a downgrade of the Series B Notes to CC (sf).
For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see:
Ratings assigned by DBRS Ratings GmbH are subject to EU and U.S. regulations only.
Lead Analyst: Alfonso Candelas, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 22 November 2016
DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
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The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.
-- Rating CLOs Backed by Loans to European SMEs (8 July 2019) and SME Diversity Model v.2.4,
-- Rating CLOs and CDOs of Large Corporate Credit (28 February 2020),
-- Master European Structured Finance Surveillance Methodology (22 April 2020),
-- Cash Flow Assumptions for Corporate Credit Securitizations (28 February 2020),
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2019),
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020),
-- European RMBS Insight Methodology (2 April 2020),
-- European RMBS Insight: Spanish Addendum (10 July 2019),
A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at https://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.