DBRS Ratings GmbH (DBRS Morningstar) confirmed its AAA ratings on the Cédulas Hipotecarias (CH or Spanish Covered Bonds) that are outstanding under the Banco Sabadell S.A. Covered Bonds (Cédulas Hipotecarias - Mortgages) programme (Sabadell CH or the Programme). The confirmations follow the completion of a full review of the Programme. At the same time, DBRS Morningstar discontinued its ratings on CH ES0413860455, which matured on 10 June 2020, and CH ES0413860463, which matured on 18 June 2020.
The ratings reflect the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of A (high), which is Banco Sabadell’s Long-Term Critical Obligations Rating. Banco Sabadell is the Issuer and Reference Entity for the Programme.
-- A Legal and Structuring Framework (LSF) assessment of “Average” associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of AA (low), which is the lowest CPCA in line with the LSF-implied likelihood (LSF-L).
-- An LSF-L of AA.
-- A two-notch uplift for high recovery prospects.
-- A level of overcollateralisation (OC) of 78% to which DBRS Morningstar gives credit, which is the minimum observed OC level during the past 12 months adjusted by a scaling factor of 0.85.
DBRS Morningstar analysed the transaction with its European Covered Bonds Cash Flow tool. The main assumptions focused on the timing of defaults and recoveries of the assets, interest rate stresses, and market value spreads to calculate liquidation values on the cover pool (CP).
Everything else being equal, a one-notch downgrade of the CBAP would lead to a one-notch downgrade of the LSF-L, resulting in a one-notch downgrade of the covered bond rating. In addition, everything else unchanged, the CH rating would be downgraded if any of the following occurred: (1) the CPCA was downgraded below AA (low); (2) the sovereign rating of the Kingdom of Spain were downgraded below A (low); (3) the LSF assessment associated with the Programme was downgraded; (4) the quality of the CP and the level of OC were no longer sufficient to support a two-notch uplift for high recovery prospects; (5) the relative amortisation profile of the CH and CP moved adversely; or (6) volatility in the financial markets caused the currently estimated market value spreads to increase.
There are currently EUR 21.53 billion of CH outstanding under the programme, of which DBRS Morningstar publicly rates EUR10.43 billion. As of 31 March 2020, the aggregate balance of mortgages in the CP was EUR 42.72 billion, which results in a total estimated OC of 98.4%. The eligible CP stood at EUR 31.66 billion, resulting in an estimated eligible OC of 47.4%.
Spanish covered bonds are backed by the entire mortgage book of the bank, except mortgage loans pledged to securitisations and bonos hipotecarios. As of 31 March 2020, the CP comprised 445,178 mortgage loans with a 68.0% residential, 24.4% commercial, 6.2% developers, and 1.4% land loan split and a weighted-average current unindexed loan-to-value ratio of 59.3%. The CP is geographically diversified across Spain, with the highest concentrations in Catalonia (36.5% by loan balance), Community of Valencia (15.4%), and Madrid (13.5%). Approximately 0.2% of the CP was originated in a currency other than euros. The pool was 80-months seasoned. The interest rate of the underlying loans are floating rate (62.4%) and fixed rate (37.6%).
As is customary in the Spanish market, CH holders do not receive the benefit of any swap contract to hedge the mismatches between the interest yield by the CP (62.4% floating rate linked to different indexes and resets) and the interest due on the CH (58% floating rate linked to different indexes and resets). This risk is mitigated by the OC available and accounted for in DBRS Morningstar’s cash flow analysis.
The DBRS Morningstar-calculated weighted-average life of the assets is approximately nine years while that of the covered bonds is approximately 2.8 years. This generates an asset-liability mismatch that is mitigated by the available OC.
All CH are issued in euros while 0.2% of the loans were originated in a currency other than euros. DBRS Morningstar considers this exposure to be negligible and to be mitigated by the available OC.
DBRS Morningstar has assessed the LSF related to the Programme as “Average” according to its “Rating and Monitoring Covered Bonds” methodology. For more information, please refer to DBRS Morningstar’s commentaries, “DBRS Assigns Legal and Structuring Framework Assessment to Spanish Mortgage Covered Bonds Programmes” and “Spanish Mortgage Covered Bonds: Legal and Structuring Framework Review”, both available at www.dbrsmorningstar.com.
For further information on the Programme, please refer to the rating report at www.dbrsmorningstar.com.
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 CPs, 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. In the cover pool analysis of this programme, DBRS Morningstar assumed a moderate decline in residential property prices.
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 24 April 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated covered bonds in Europe. For more details, please see: https://www.dbrsmorningstar.com/research/359987/covid-19-the-impact-on-european-covered-bonds 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 ratings is: “Rating and Monitoring Covered Bonds” (27 April 2020).
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 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 CP stratification tables as at 31 March 2020 and static pool default and recovery data on Sabadell mortgage book from Q1 2001 to Q4 2019 provided by the Issuer.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
At the time the of the initial rating, DBRS Morningstar was not 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 21 January 2020, when DBRS Morningstar assigned a AAA rating to a new series.
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.
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: Covadonga Aybar, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 3 September 2013
DBRS Ratings GmbH, Sucursal en España
Calle del Pinar, 5
Tel. +34 (91) 903 6500
DBRS Ratings GmbH
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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 and Monitoring Covered Bonds (27 April 2020),
-- Rating and Monitoring Covered Bonds Addendum: Market Value Spreads (27 April 2020),
-- Global Methodology for Rating Banks and Banking Organisations (20 June 2020),
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
-- European RMBS Insight Methodology (2 April 2020) and European RMBS Insight Model 126.96.36.199, https://www.dbrsmorningstar.com/research/359192/european-rmbs-insight-methodology
-- European RMBS Insight: Spanish Addendum (10 July 2019), https://www.dbrsmorningstar.com/research/347838/european-rmbs-insight-spanish-addendum
-- 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.
-- 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.
-- Rating CLOs and CDOs of Large Corporate Credit (28 February 2020), https://www.dbrsmorningstar.com/research/357452/rating-clos-and-cdos-of-large-corporate-credit.
-- Rating CLOs Backed by Loans to European SMEs (8 July 2019) and DBRS Diversity Model v2.4, https://www.dbrsmorningstar.com/research/347780/rating-clos-backed-by-loans-to-european-smes.
-- 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.
-- Currency Stresses for Global Structured Finance Transactions (15 April 2020), https://www.dbrsmorningstar.com/research/359639/currency-stresses-for-global-structured-finance-transactions
-- Global Methodology for Rating Sovereign Governments (17 September 2019), https://www.dbrsmorningstar.com/research/350410/global-methodology-for-rating-sovereign-governments.
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.