DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the Notes issued by Caixabank Leasings 3, FT (the Issuer):
-- Series A Notes confirmed at AA (sf)
-- Series B Notes downgraded to B (low) (sf) from B (high) (sf). The Under Review with Negative Implications (UR-Neg.) status on the rating was removed.
The downgrade of the Series B Notes was driven by higher perceived default risk as a result of the negative economic impact on enterprises caused by the Coronavirus Disease (COVID-19) pandemic, given the transaction’s large exposure towards small and medium-size enterprise (SME) borrowers operating in vulnerable sectors, and taking into consideration the higher unemployment rates expected per DBRS Morningstar’s moderate scenario in the global macroeconomic outlook, as last updated on 22 July 2020.
The rating on the Series A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in December 2039. The rating on the Series B Notes addresses the ultimate payment of interest and principal on or before the legal final maturity date in December 2039.
The rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses as of the June 2020 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- Current available credit enhancement to the Notes to cover the expected losses at their respective rating levels;
-- Current economic environment and an assessment of sustainable performance, as a result of the coronavirus pandemic.
The Issuer is a securitisation of Spanish lease contracts granted by CaixaBank, S.A. (CaixaBank) to enterprises and self-employed individuals based in Spain. CaixaBank also acts as the servicer of the portfolio. At closing, the EUR 1,830.0 million portfolio consisted of equipment leases (38.9%), vehicle leases (36.5%), and real estate leases (24.6%). The transaction closed in June 2019, with no revolving period.
As of August 2020, loans that were 0 to 30 days, 30 to 60 days, and 60 to 90 days delinquent represented 0.28%, 0.04%, and 0.02% of the outstanding collateral balance, respectively, while loans more than 90 days delinquent amounted to 0.76%. Gross cumulative defaults are low at 0.13% of the original portfolio balance, with receivables classified as defaulted after 12 months of arrears per the transaction documentation.
PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 6.8% and 54.2%, respectively.
In May 2020, DBRS Morningstar released its commentaries, “European ABS Transactions’ Risk Exposure to Coronavirus (COVID-19) Effect” (https://www.dbrsmorningstar.com/research/360734) and “European Structured Credit Transactions’ Risk Exposure to Coronavirus (COVID-19) Effect” (https://www.dbrsmorningstar.com/research/361098), where DBRS Morningstar discussed the overall risk exposure of the ABS and SME sectors to the coronavirus and provided a framework for identifying the transactions that are more at risk and likely to be affected by the fallout of the pandemic on the economy.
Considering the framework, the downgrade of the Series B Notes is driven by the heavy exposure towards SME borrowers, as well as taking into consideration the unemployment levels contemplated in DBRS Morningstar’s moderate scenario of the updated global macroeconomic outlook commentary published on 22 July 2020 (https://www.dbrsmorningstar.com/research/364318/global-macroeconomic-scenarios-july-update), which could result in higher delinquencies, ultimately higher defaults and lower recoveries.
The subordination of the Series B Notes and the cash reserve provide credit enhancement to the Series A Notes while the Series B Notes receive credit enhancement from the cash reserve only once the Series A Notes have been repaid in full. As of the June 2020 payment date, credit enhancement to the Series A Notes increased to 26.3% from 18.9% at the initial rating date; credit enhancement to the Series B Notes increased to 6.8% from 4.9%.
The transaction benefits from an amortising cash reserve available to cover senior expenses and all payments due on the senior-most class of notes outstanding at the time. The reserve was funded to EUR 89.7 million at closing through a subordinated loan granted by CaixaBank, and starting from the September 2020 payment date, is expected to begin amortising to its target level of 4.9% of the outstanding principal balance of the notes.
CaixaBank acts as the account bank for the transaction. Based on the account bank reference rating of CaixaBank at A (high), which is one notch below the DBRS Morningstar public Long-Term Critical Obligations Rating (COR) 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 ratings assigned to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.
DBRS Morningstar analysed the transaction structure in Intex DealMaker.
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 on receivables granted to enterprises operating in certain industries based on their perceived exposure to the adverse disruptions of the coronavirus, and conducted additional sensitivity analysis to determine that the transaction benefits from sufficient liquidity support to withstand high levels of payment holidays or payment moratoriums in the portfolio.
On 16 April 2020, he DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020-22 period in select economies. 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. DBRS Morningstar’s analysis considered impacts consistent with the moderate scenario in the referenced reports.
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 the “Master European Structured Finance Surveillance Methodology” (22 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 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 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 these ratings include investor reports and information provided by CaixaBank Titulización, S.G.F.T., S.A.U. (the Management Company) and loan-level data provided by 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 10 June 2020, when DBRS Morningstar confirmed its AA (sf) rating on the Series A Notes and placed its B (high) (sf) rating on the Series B Notes UR-Neg.
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 ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the ratings (the base case):
-- DBRS Morningstar expected a lifetime base case PD and LGD for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.
-- The base case PD and LGD of the current pool of loans for the Issuer are 6.8% and 54.2%, respectively.
-- The risk sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating of the Series A Notes would be expected to decrease to A (high) (sf), ceteris paribus. If the PD increases by 50%, the rating of the Series A Notes would be expected to decrease to A (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating of the Series A Notes would be expected to decrease to BBB (high) (sf).
Series A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)
Series B Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating below B (low) (sf)
-- 50% increase in LGD, expected rating below B (low) (sf)
-- 25% increase in PD, expected rating below B (low) (sf)
-- 50% increase in PD, expected rating below B (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating below B (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating below B (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating below B (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating below B (low) (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: Daniel Rakhamimov, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 18 June 2019
DBRS Ratings GmbH
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The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.
-- Master European Structured Finance Surveillance Methodology (22 April 2020),
-- Rating European Consumer and Commercial Asset-Backed Securitisations (3 September 2020), https://www.dbrsmorningstar.com/research/366294/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Rating European Structured Finance Transactions Methodology (21 July 2020), https://www.dbrsmorningstar.com/research/364305/rating-european-structured-finance-transactions-methodology.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
-- Rating CLOs Backed by Loans to European SMEs (8 July 2019) and DBRS Diversity Model v188.8.131.52,
-- Rating CLOs and CDOs of Large Corporate Credit (21 July 2020), https://www.dbrsmorningstar.com/research/364310/rating-clos-and-cdos-of-large-corporate-credit.
-- 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.
-- 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 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.