Press Release

DBRS Morningstar Confirms AAA Ratings of CaixaBank S.A. Covered Bonds

Covered Bonds
January 15, 2021

DBRS Ratings GmbH (DBRS Morningstar) confirmed its AAA ratings on the outstanding Cédulas Hipotecarias (CH, Spanish mortgage covered bonds) issued under the the CaixaBank S.A. Covered Bonds programme (CaixaBank CH or the Programme). This rating action follows the completion of a full review of the ratings. At the same time, DBRS Morningstar discontinued its rating on Cedulas Hipotecarias - ES0440609198, which matured on 26 July 2020, and Cedulas Hipotecarias - ES0440609305, which matured on 12 November 2020.

The ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of AA (low), which is CaixaBank’s Long Term Critical Obligations Rating. CaixaBank is the Issuer and Reference Entity (RE) for the Programme.
-- A Legal and Structuring Framework (LSF) Assessment of “Average” associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of BBB (high), which is the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L).
-- An LSF-L of AA. In DBRS Morningstar’s view, CaixaBank CH’s LSF-L is limited to one notch above the CBAP.
-- A two-notch uplift for high recovery prospects.
-- A level of overcollateralisation (OC) of 60.9% to which DBRS Morningstar gives credit, which is the minimum level observed in the last 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 bonds rating. In addition, all else unchanged, the CH ratings would be downgraded if any of the following occurred: (1) the CPCA was downgraded below BBB (high); (2) the sovereign rating of the Kingdom of Spain was 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.

The total outstanding amount of CH under the programme is currently EUR 48.27 billion, while as of September 2020 the aggregate balance of mortgages in the CP was EUR 84.58 billion. This resulted in a total estimated OC of 75.2%. As of September 2020, the eligible CP stood at EUR 64.44 billion, resulting in an estimated eligible OC of 33.5%.

Spanish covered bonds are backed by the entire mortgage book of the bank, except mortgage loans pledged to securitisations and bonos hipotecarios. As of 30 September 2020, the CP comprised 1,147,713 mortgage loans, with a weighted-average current unindexed loan-to-value ratio of 54.5%. The pool is composed of residential (77.8%), commercial (16.0%), developer (5.9%), and land (0.4%) loans. It is geographically diversified, with higher concentrations in Catalonia (29.1%), Andalusia (15.9%), and Madrid (16.7%). The pool is 105 months seasoned. Approximately 0.7% of the pool assets were originated in a currency other than euros.

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 (76.4% floating rate linked to different indexes and resets) and the interest due on the CH (35.1% paying fixed rate and 64.9% floating rate linked to different indexes and resets). This risk is mitigated by the OC available and accounted for in the cash-flow analysis.

The two foreign currency CH amount to a nominal of USD 966.2 million, equivalent to roughly EUR 825.2 million at the spot rate as of 30 September 2020 (or 1.7% of the CH outstanding). Of the loans, 0.7% were originated in a currency other than euros. DBRS Morningstar considers this exposure to be negligible and to be mitigated by the available OC.

The DBRS Morningstar-calculated WA life of the assets is approximately nine years while that of the covered bonds is approximately 3.9 years. This generates an asset-liability mismatch that is 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 payment holidays and delinquencies may increase in the coming months for many CPs, some meaningfully. The ratings are based on additional analysis 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.

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 2 December 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/370672/global-macroeconomic-scenarios-december-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.

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.

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 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 surveillance section of 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 information used for these ratings include CP stratification tables as at 30 September 2020 and historical dynamic performance data on CaixaBank’s mortgage book provided by the issuer.

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 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 15 January 2020, when DBRS Morningstar confirmed ratings on Caixabank´s CH following a full review of the Programme.

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. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Covadonga Aybar, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 20 January 2016

DBRS Ratings GmbH, Sucursal en España
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28006 Madrid
Spain
Tel. +34 (91) 903 6500

DBRS Ratings GmbH
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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: https://www.dbrsmorningstar.com/about/methodologies.

-- Rating and Monitoring Covered Bonds (27 April 2020),
https://www.dbrsmorningstar.com/research/360260/rating-and-monitoring-covered-bonds.
-- Rating and Monitoring Covered Bonds Addendum: Market Value Spreads (27 April 2020),
https://www.dbrsmorningstar.com/research/360263/rating-and-monitoring-covered-bonds-addendum-market-value-spreads.
-- Global Methodology for Rating Banks and Banking Organisations (8 June 2020),
https://www.dbrsmorningstar.com/research/362170/global-methodology-for-rating-banks-and-banking-organisations.
-- Legal Criteria for European Structured Finance Transactions (17 September 2020), https://www.dbrsmorningstar.com/research/366797/legal-criteria-for-european-structured-finance-transactions-request-for-comment
-- European RMBS Insight Methodology (2 April 2020) and European RMBS Insight Model v5.0.0.0, https://www.dbrsmorningstar.com/research/359192/european-rmbs-insight-methodology.
-- European RMBS Insight: Spanish Addendum (26 August 2020), https://www.dbrsmorningstar.com/research/366107/european-rmbs-insight-spanish-addendum
-- Operational Risk Assessment for European Structured Finance Originators (30 September 2020), https://www.dbrsmorningstar.com/research/367603/operational-risk-assessment-for-european-structured-finance-originators
-- Operational Risk Assessment for European Structured Finance Servicers (19 November 2020), https://www.dbrsmorningstar.com/research/370270/operational-risk-assessment-for-european-structured-finance-servicers
-- 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
-- Rating CLOs Backed by Loans to European SMEs (30 September 2020) and DBRS Diversity Model v2.4.2.0, https://www.dbrsmorningstar.com/research/367642/rating-clos-backed-by-loans-to-european-smes.
-- Interest Rate Stresses for European Structured Finance Transactions (28 September 2020), https://www.dbrsmorningstar.com/research/367292/interest-rate-stresses-for-european-structured-finance-transactions.
-- Global Methodology for Rating Sovereign Governments (27 July 2020), https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.
-- Currency Stresses for Global Structured Finance Transactions (15 April 2020), https://www.dbrsmorningstar.com/research/359639/currency-stresses-for-global-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 info@dbrsmorningstar.com.