Press Release

DBRS Morningstar Confirms and Downgrades Ratings on Notes Issued by IM BCC Capital 1, FT and Removes Under Review with Negative Implications Status

Structured Credit

October 05, 2020

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the notes issued by IM BCC Capital 1, FT (the Issuer):

-- Class A Notes confirmed at AA (sf)
-- Class B Notes downgraded to BBB (low) (sf) from BBB (sf)
-- Class C Notes downgraded to BB (low) (sf) from BB (sf)

The rating actions resolve the Under Review with Negative Implications (UR-Neg.) status on the Class B and Class C Notes.

The downgrades of the Class B Notes and Class C Notes were 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 rating of the Class A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal maturity date in April 2037. The ratings of the Class B Notes and Class C Notes address 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 pandemic.

DBRS Morningstar placed the ratings on the Class B Notes and Class C Notes UR-Neg. on 2 July 2020. For more information, please refer to: https://www.dbrsmorningstar.com/research/363360/dbrs-morningstar-places-ratings-on-im-bcc-capital-1-ft-under-review-with-negative-implications.

DBRS Morningstar has assessed the potential impact of the coronavirus pandemic on this transaction by adjusting its collateral assumptions in line with the risk factors in its “European RMBS Transactions’ Risk Exposure to Coronavirus (COVID-19) Effect” commentary published on 5 May 2020, outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated RMBS transactions in Europe. For more details, please see the following commentaries: https://www.dbrsmorningstar.com/research/360599/european-rmbs-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.

The transaction is a cash flow securitisation collateralised by a portfolio of term loans originated and serviced by Cajamar Caja Rural, S.C.C. (Cajamar), granted to SMEs and self-employed individuals based in Spain.

PORTFOLIO PERFORMANCE
The transaction’s performance has been stable since closing. As of 30 June 2020, the overall portfolio consisted of an aggregate principal balance of EUR 583.0 million. The current cumulative default ratio was at 0.36%. 30-60 and 60-90 day delinquency ratios stood at 0.14% and 0.13%, respectively.

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 37.8% and 29.0%, respectively, at the AA (sf) rating level, to 23.3% and 34.5%, respectively, at the BBB (low) (sf) rating level and to 17.0% and 39.6%, respectively, at the BB (low) (sf) rating level. The base case PD has been updated to 2.7% following coronavirus adjustments.

On 18 May 2020, DBRS Morningstar released its commentary, “European Structured Credit Transactions’ Risk Exposure to Coronavirus (COVID-19) Effect” where DBRS Morningstar discussed the overall risk exposure of the SME sector 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. 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 this transaction, DBRS Morningstar identified a high exposure to industry sectors considered as “Mid-High” or “High” risk as a result of the coronavirus disruption and anticipates increased expected default rates for obligors in those industries based on their perceived exposure to the adverse disruption of the coronavirus. The downgrades reflect the increased default rate assumptions, given the limited credit enhancement available to the Class B and Class C Notes, which remains stable because of the pro rata amortisation of the rated notes.

The rating actions also take into consideration the unemployment levels contemplated in DBRS Morningstar’s moderate scenario of the updated global macroeconomic outlook commentary published on 10 September 2020, which could result in higher delinquencies, ultimately higher defaults and lower recoveries.

CREDIT ENHANCEMENT
The Class A to E Notes amortise pro rata, unless certain sequential amortisation events have occurred to date. As a result of the pro rata amortisation, credit enhancement has remained stable at 38.8%, 15.0%, and 8.2% for the Class A, B, and C Notes, respectively. The credit enhancement for the rated notes is provided by the subordination of the junior notes and a reserve fund.

The reserve fund is currently funded at EUR 11.7 million. After the first 12 months of the transaction, it is funded at its target level of 2.0% of the aggregate balance of the Class A to Class D Notes, subject to a floor of EUR 9.5 million, and it is available to cover shortfalls in the senior expenses and interest and principal of the Class A to Class D Notes.

The structure also benefits from a commingling reserve account funded at closing to mitigate any potential disruptions of the payment of senior expenses and interest on the Class A Notes. This is currently funded at EUR 0.5 million.

Banco Santander SA (Santander) acts as the account bank for the transaction. Based on the DBRS Morningstar reference rating of Santander of A (high), one notch below its DBRS Morningstar Long Term Critical Obligations 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 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 July 2020, around 0.7% of the current portfolio balance benefited from any type of payment moratorium.

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. The DBRS Morningstar 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.

ESG CONSIDERATIONS
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.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Rating CLOs Backed by Loans to European SMEs” (30 September 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 transactions 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, InterMoney Titulización SGFT, S.A., 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 last rating action on the transaction took place on 2 July 2020, when DBRS Morningstar placed the ratings on the Class B Notes and Class C 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 2.7%, a 10% and 20% increase on the base case PD.
-- Recovery Rates Used: Base case recovery rates of 29.0% at the AA (sf), 34.5% at the BBB (low) (sf) and 39.6% at the BB (low) (sf) stress levels, a 10% and 20% decrease in the base case recovery rate.

In relation to the Class 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 Class A Notes to A (high) (sf). A hypothetical decrease of the recovery rate by 20%, ceteris paribus, would also lead to a downgrade of the Class A Notes rating to A (high) (sf). A scenario combining both a hypothetical increase in the PD by 20% and a hypothetical decrease in the recovery rate by 20% would also lead to a downgrade of the Class A Notes to A (high) (sf).

With regard to the Class B Notes, DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20%, ceteris paribus, would lead to a downgrade of the Class B Notes to BB (high) (sf). A hypothetical decrease of the recovery rate by 20%, ceteris paribus, would also lead to a downgrade of the Class B Notes rating to BB (high) (sf). A scenario combining both a hypothetical increase in the PD by 20% and a hypothetical decrease in the recovery rate by 20% would also lead to a downgrade of the Class B Notes to BB (high) (sf).

Finally, for the Class C Notes, DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20%, ceteris paribus, would lead to a downgrade of the Class C Notes to B (sf). A hypothetical decrease of the recovery rate by 20%, ceteris paribus, would also lead to a downgrade of the Class C Notes rating to B (sf). A scenario combining both a hypothetical increase in the PD by 20% and a hypothetical decrease in the recovery rate by 20% would lead to a downgrade of the Class C Notes to 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:
http://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: Alfonso Candelas, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 10 December 2018

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.

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 info@dbrsmorningstar.com.

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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