Press Release

DBRS Morningstar Confirms A (high) Ratings on Cajamar Caja Rural S.C.C. Covered Bonds

Covered Bonds

July 09, 2021

DBRS Ratings GmbH (DBRS Morningstar) confirmed its A (high) ratings on the outstanding Cédulas Hipotecarias (CH; Spanish mortgage covered bonds) issued under the Cajamar Caja Rural S.C.C. Covered Bonds programme (Cajamar CH or the Programme). The confirmation follows the completion of a full review of the ratings.

At the same time, DBRS Morningstar discontinued its ratings on CH ES0422714040, which matured on 22 October 2020; and CH ES0422714065, which matured on 30 June 2021.

The ratings reflect the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of BBB (low), which is one notch above Cajamar Caja Rural, Sociedad Cooperativa de Crédito (Cajamar) Long-Term Issuer Rating. Cajamar is the Issuer and Reference Entity for the Programme.
-- A Legal and Structuring Framework (LSF) assessment of “Average” associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of “A”, which is the lowest CPCA in line with the LSF-implied likelihood (LSF-L).
-- An LSF-L of A (low).
-- A two-notch uplift for high recovery prospects.
-- A level of overcollateralisation (OC) of 115.9% to which DBRS Morningstar gives credit, which is the minimum observed OC level during the past 12 months adjusted by a scaling factor of 0.90.

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 three-notch downgrade of the LSF-L, resulting in a three-notch downgrade of the covered bonds rating. In addition, everything else unchanged, the CH ratings would be downgraded if any of the following occurred: (1) the CPCA was downgraded below “A”; (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.

As of 30 June 2021, there were EUR 5.25 billion of CH outstanding under the programme, of which DBRS Morningstar publicly rates EUR 1.75 billion. As of 31 March 2021, the CH outstanding amounted to EUR 5.75 billion and the aggregate balance of mortgages in the CP was EUR 13.27 billion, which resulted in a total estimated OC of 130.9%. The eligible CP stood at EUR 9.88 billion, resulting in an estimated eligible OC of 71.9%.

Spanish covered bonds are backed by the entire mortgage book of the bank, except mortgage loans pledged to securitisations and bonos hipotecarios. As of 31 March 2021, the CP comprised 170,901 mortgage loans with a 71.8% residential, 24.2% commercial, 2.8% developers, and 1.1% land loan split, and an unindexed weighted-average loan-to-vale (WALTV) of 54.8%. The CP is geographically diversified across Spain, with the highest concentrations in in Andalusia (33.2%), Community of Valencia (24.9%), and Murcia (17.7%). All the CP was originated in euros. The pool was 99 months seasoned, with a WA remaining term of 208 months. The interest rates of the underlying loans are both floating rate (93.7%) and fixed rate (6.3%).

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 (93.7% floating rate linked to different indexes and resets) and the interest due on the CH (100% fixed rate). This risk is mitigated by the available OC and accounted for in DBRS Morningstar’s cash flow analysis.

The weighted-average life of the assets estimated by DBRSM is approximately 9.7 years while that of the covered bonds is approximately 2.6 years. This generates an asset-liability mismatch that is mitigated by the available OC. All CH are issued in euros.

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 in some cases to increases in unemployment rates and income reductions for borrowers. DBRS Morningstar anticipates that delinquencies may continue to increase in the coming months for many cover pools, some meaningfully. The ratings are based on additional analysis and, where appropriate, adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. In the cover pool analysis of this programme, DBRS Morningstar incorporated an increase in probability of default for certain borrower characteristics.

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 18 June 2021. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/380281/global-macroeconomic-scenarios-june-2021-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 14 June 2021, DBRS Morningstar updated its 5 May 2020 commentary outlining the impact of the coronavirus crisis on performance of DBRS Morningstar-rated RMBS transactions in Europe one year on. For more details, please see: https://www.dbrsmorningstar.com/research/380094/the-impact-of-covid-19-on-european-mortgage-performance-one-year-on and https://www.dbrsmorningstar.com/research/360599/european-rmbs-transactions-risk-exposure-to-coronavirus-covid-19-effect.

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.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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/373262.

DBRS Morningstar amended the above press release on 7 January 2022 to update the sensitivities section, where a one-notch downgrade of the CBAP will have an impact on the LSF-L and the CB rating of three notches rather than one.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Rating and Monitoring Covered Bonds” (10 June 2021).

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 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 CP stratification tables as at 31 March 2021 and static pool default and recovery data on Cajamar mortgage book from Q2 2016 to Q2 2021 provided by the Issuer.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

At the time the 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 10 July 2020, when DBRS Morningstar confirmed its “A” ratings on Cajamar CH following a full review of the Programme.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.

The lead analyst responsibilities for this transaction have been transferred to Tomás Rodríguez-Vigil.

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. 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: Tomás Rodríguez-Vigil, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 19 July 2013

DBRS Ratings GmbH, Sucursal en España
Paseo de la Castellana 81
Plantas 26 & 27
28046 Madrid, Spain
Spain
Tel. +34 (91) 903 6500

DBRS Ratings GmbH
Neue Mainzer Straße 75
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: https://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: 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.

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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