DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional rating of AA (low) (sf) on the Series A Notes (the Rated Notes) issued by BBVA Leasing 2, F.T. (the issuer). DBRS Morningstar does not rate the Loan B issued in this transaction.
The rating on the Series A Notes addresses the timely payment of scheduled interest and the ultimate repayment of principal by the legal final maturity date in November 2043.
DBRS Morningstar based its rating on the following analytical considerations:
-- The transaction’s capital structure, including form and sufficiency of available credit enhancement.
-- Credit enhancement levels 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.
-- Banco Bilbao Vizcaya Argentaria S.A.’s (BBVA or the originator) financial strength and capabilities with respect to originations, underwriting, and servicing.
-- DBRS Morningstar’s operational risk review on BBVA, which it deemed to be an acceptable servicer.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The credit quality, diversification of the collateral, and historical and projected performance of the originator’s portfolio.
-- DBRS Morningstar’s 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.
The transaction represents the issuance of Series A Notes and Loan B (collectively, the notes) backed by a portfolio of approximately EUR 2.1 billion of commercial leases granted mostly to corporates and small and medium-size enterprises originated by BBVA in Spain. The transaction is managed by Europea de Titulización, S.A., Sociedad Gestora de Fondos de Titulización (the management company). BBVA is the servicer of the portfolio.
The transaction benefits from a reserve fund that was funded to EUR 105,000,000 at closing through the proceeds of a subordinated loan and will be able to provide liquidity and credit support to the Rated Notes. Once the Series A Notes have been redeemed in full, the reserve fund will also provide liquidity and credit support for Loan B. As of 25 June 2020, the portfolio had an aggregate principal balance of EUR 2.5 billion (from which the EUR 2.1 billion initial portfolio have been selected on or about the issue date) and consisted of 40,187 loans extended to 19,967 borrower groups.
The notes pay a fixed rate like the majority of the portfolio (77.6% by outstanding balance) whereas 22.4% of the portfolio by outstanding balance are floating-rate leases indexed to Euribor.
The notes will be repaid on a fully sequential basis starting from the first payment date in November 2020. The transactions’ available funds are distributed through a combined interest and principal waterfall.
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.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at:
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. 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 published its outlook on the impact to key economic indicators for the 2020-22 period. These scenarios were last updated on 22 July 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/364318/global-macroeconomic-scenarios-july-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.
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.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the rating 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.
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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for this rating include data and information sourced by the originator and provided through the originator (BBVA) and the management company (Europea de Titulización S.A. S.G.F.T.)
DBRS Morningstar received quarterly static default and recovery data from Q1 2012 to Q4 2019 and monthly dynamic delinquency data from May 2015 to May 2020. DBRS Morningstar also received a set of stratification tables for the loan pool as of 25 June 2020 and its related contractual amortisation profile.
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 concern a newly issued financial instrument. This is the first DBRS Morningstar rating 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 rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):
-- Probability of default (PD) used: Expected PD of 7.6%
-- Loss given default (LGD) used: Expected LGD of 78.5%
Scenario 1: A 25% increase in the expected PD.
Scenario 2: A 50% increase in the expected PD.
Scenario 3: A 25% increase in the expected LGD.
Scenario 4: A 25% increase in the expected PD and a 25% increase in the expected LGD.
Scenario 5: A 50% increase in the expected PD 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 PD and a 50% increase in the expected LGD.
Scenario 8: A 50% increase in the expected PD and a 50% increase in the expected LGD.
DBRS Morningstar concludes that the expected ratings under the eight hypothetic scenarios are
-- Series A Notes: A (low) (sf), BBB (high) (sf), A (low) (sf), BBB (high) (sf), BB (high) (sf), A (low) (sf), BBB (high) (sf), BB (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: https://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: Ronja Dahmen, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 23 July 2020
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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 European Consumer and Commercial Asset-Backed Securitisations (13 January 2020)
--Rating CLOs Backed by Loans to European SMEs (8 July 2020) and DBRS Morningstar SME Diversity Model v 2.4, https://www.dbrsmorningstar.com/research/347780/rating-clos-backed-by-loans-to-european-smes
--Legal Criteria for European Structured Finance Transactions (11 September 2019)
--Operational Risk Assessment for European Structured Finance Servicers (28 February 2020)
--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)
--Rating European Structured Finance Transactions Methodology (21 July 2020)
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 firstname.lastname@example.org.