DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the notes issued by CaixaBank PYMES 11, FT (the Issuer):
-- Series A Notes confirmed at AA (low) (sf)
-- Series B Notes downgraded to CCC (high) (sf) from B (sf)
The Under Review with Negative Implications (UR-Neg.) status on the ratings 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 small and medium-size enterprises (SMEs) caused by the Coronavirus Disease (COVID-19) pandemic, given the transaction’s large exposure towards 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 10 September 2020. The confirmation of the rating for Class A considered the transaction performance to date and that it did not yet deteriorate meaningfully.
The rating of the Series A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal maturity date in April 2052. The rating of the Series B Notes addresses the ultimate payment of interest and principal on or before the legal maturity date.
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 July 2020 payment date.
-- The base case probability of default (PD) and default and recovery rates on the receivables.
-- The current available credit enhancement to the notes to cover the expected losses at their respective rating levels.
-- The current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.
CaixaBank PYMES 11, FT is a cash flow securitisation collateralised by a portfolio of secured and unsecured loans and drawdowns of secured lines of credit originated and serviced by CaixaBank, S.A. (CaixaBank) to corporates, SMEs, and self-employed individuals in Spain. The transaction closed in November 2019.
The transaction’s performance has been stable since closing. As of July 2020, loans that were two to three months in arrears represented 0.05% of the outstanding portfolio balance. The 90+ delinquency ratio was 0.9% and the cumulative gross default ratio stood at 0.04% of the original portfolio balance. Receivables are 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 on the remaining pool of receivables and updated its default rate and recovery assumptions on the outstanding portfolio to 33.9% and 26.4%, respectively, at the AA (low) (sf) rating level, and to 11.6% and 36.9%, respectively, at the CCC (high) (sf) rating level. The base case PD has been updated to 2.8% following coronavirus adjustments.
The credit enhancements available to the rated notes has increased as the transaction deleverages. As of the July 2020 payment date, the credit enhancements available to the Series A Notes and Series B Notes were 21.0% and 5.6%, respectively (up from 17.7% and 4.7%, respectively, at closing). Credit enhancement is provided by subordination of the Series B Notes and a reserve fund. The reserve fund was funded through a subordinated loan and is available to cover senior fees, interest. and principal payments on the Series A Notes, and once the Series A Notes are fully amortised, interest and principal on the Series B Notes. The cash reserve is expected to begin amortising from the January 2021 payment date, subject to the target level being equal to 4.7% of the outstanding balance of the rated notes.
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.
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. Additionally, DBRS Morningstar conducted additional sensitivity analysis to determine that the transaction benefits from sufficient liquidity support to withstand high levels of payment holidays in the portfolio. As of 31 August 2020, around 3.0% of the current portfolio balance benefits from any type of payment moratorium. For Class A, DBRS Morningstar also considered the transaction performance to date and that it did not yet deteriorate meaningfully. As such DBRS Morningstar placed less weight on the adjusted stressed performance assumptions.
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 last updated on 10 September 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/366542/global-macroeconomic-scenarios-september-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.
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 ratings 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.
DBRS Morningstar reviewed an amendment to the maturity extension limits allowed by the transaction, which were increased to 11% from 5% of the original balance. The amendment went into effect on 16 July 2020.
A review of the any other 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: 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 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 transaction reports and information provided by the Management Company, CaixaBank Titulización, S.G.F.T., S.A.U., 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 rating, 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 latest rating action on this transaction took place on 2 July 2020, when DBRS Morningstar placed the ratings on the Series A and 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 to the parameters used to determine the ratings (the base case):
-- PD Rates Used: Base case PD of 2.8%, a 10% and 20% increase on the base case PD.
-- Recovery Rates Used: Base case recovery rates of 26.4% at the AA (low) (sf), 36.9% at the CCC (high) (sf) stress levels, a 10% and 20% decrease in the base case recovery rate.
For the Series A Notes, DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20%, ceteris paribus, would lead to a downgrade of the Series A Notes to A (low) (sf) and a downgrade of the Series B Notes to CCC (low) (sf). A hypothetical decrease of the base case recovery rate by 20%, ceteris paribus, would lead to a downgrade of the Series A Notes to A (low) (sf) and a downgrade of the Series B Notes to CCC (low) (sf). Finally, a scenario combining both an increase in the base case PD by 10% and a decrease in the base case recovery rate by 10% would also lead to a downgrade of the Series A Notes to A (low) (sf) and a downgrade of the Series B Notes to CCC (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: Alfonso Candelas, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 21 November 2019
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 CLOs Backed by Loans to European SMEs (8 July 2019) and DBRS Morningstar SME Diversity Model 18.104.22.168, 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),
-- Cash Flow Assumptions for Corporate Credit Securitizations (28 February 2020),
-- 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.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
-- Master European Structured Finance Surveillance Methodology (22 April 2020),
-- 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
-- European RMBS Insight: Spanish Addendum (26 August 2020),
-- European RMBS Insight Methodology (2 April 2020),
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 firstname.lastname@example.org.