Press Release

DBRS Morningstar Upgrades and Confirms Ratings on Two IM BCC Cajamar PYME Transactions

Structured Credit

March 21, 2023

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the notes issued by IM BCC Cajamar PYME 3 FT (CJP3) and IM BCC Cajamar PYME 4 FT (CJP4):

CJP3:
-- Series A Notes upgraded to AAA (sf) from AA (high) (sf)
-- Series B Notes confirmed at B (low) (sf)

CJP4:
-- Series A Notes upgraded to AAA (sf) from AA (sf)
-- Series B Notes upgraded to CCC (high) (sf) from CCC (low) (sf)

The ratings on the Series A Notes address the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity dates in June 2057 and July 2064 for CJP3 and CJP4, respectively. The ratings on the Series B Notes address the ultimate payment of interest and principal on or before the legal final maturity dates.

The rating actions follow an annual review of the transactions and are based on the following analytical considerations:
-- The portfolios performance, in terms of level of delinquencies and defaults, as of the February 2023 payment dates;
-- The one-year base case probability of default (PD) and default and recovery rates on the outstanding receivables; and
-- The current available credit enhancement to the notes to cover the expected losses at their respective rating levels.

The transactions are cash flow securitisations collateralised by a portfolio of secured and unsecured loans originated and serviced by Cajamar Caja Rural S.C.C. (Cajamar) to small and medium-size enterprises (SME) and self-employed individuals based in Spain. The transactions closed in April 2021 (CJP3) and March 2022 (CJP4).

PORTFOLIO PERFORMANCE
Both portfolios are performing within DBRS Morningstar’s expectations. For CJP3, as of 28 February 2023, the 90+ day delinquency ratio was 1.0%, up from 0.6% at the time of the last annual review. The cumulative defaults stood at 0.5% of the original balance. For CJP4, as of 28 February 2023, the 90+ day delinquency ratio represented 0.8% of the current balance. The cumulative default ratio stood at 0.02%.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and updated its default rate and recovery assumptions on the outstanding portfolio for CJP3 to 37.7% and 27.4%, respectively, at the AAA (sf) rating level, and to 10.2% and 42.6%, respectively, at the B (low) (sf) rating level.

For CJP4, DBRS Morningstar updated its default rate and recovery assumptions on the outstanding portfolio to 41.7% and 26.0% at the AAA (sf) rating level, and to 12.0% and 38.3%, respectively at the CCC (high) (sf) rating level. DBRS Morningstar updated its one-year base case PD to 2.6% and 3.3% for CJP3 and CJP4, respectively, based on the updated portfolio composition of both transactions.

CREDIT ENHANCEMENT
The credit enhancement available to the notes has increased as the transactions deleverage. As of the February 2023 payment date, the credit enhancement available to the Series A Notes and Series B Notes for CJP3 increased to 47.3% and 5.5%, respectively, compared with 34.1% and 3.9%, respectively, one year ago.

As of the February 2023 payment date, the credit enhancement available to the Series A Notes and Series B Notes for CJP4 increased to 33.0% and 4.0%, respectively, compared with 25.0% and 3.0%, respectively, at closing.

Credit enhancement is provided by the subordination of the Series B Notes and the reserve fund. The reserve fund was funded at closing through a subordinated loan and is available to cover senior fees and interest and principal on the Series A Notes and, once the Series A Notes are fully amortised, interest and principal on the Series B Notes. The reserve funds do not amortise through the life of the transactions and remain at their target levels of EUR 30.0 million and EUR 27.0 million for CJP3 and CJP4, respectively.

Interest and principal payments on the Series B Notes are subordinated to the interest and principal payments on the Series A Notes.

Banco Santander S.A. (Santander) acts as the account bank for the transactions. Based on the account bank reference rating of A (high) on Santander (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 ratings assigned to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant impact on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the “DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings” at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

DBRS Morningstar analysed the transactions structures in its proprietary Excel-based cash flow engine.

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” (10 June 2022); https://www.dbrsmorningstar.com/research/398252/rating-clos-backed-by-loans-to-european-smes.

Other methodologies referenced in these transactions are listed at the end of this press release. These may be found at: https://www.dbrsmorningstar.com/about/methodologies.

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transactions in accordance with the surveillance section of the principal methodology.

DBRS Morningstar received notification of an amendment to the account bank interest rate effective 31 March 2023 for both transactions. A review of any other transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating actions.

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/401817/global-methodology-for-rating-sovereign-governments.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The sources of data and information used for these ratings include reports and information provided by the Management Company, Intermoney Titulización S.G.F.T., S.A., and loan-by-loan data from 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 the CJP3 transaction took place on 8 April 2022, when DBRS Morningstar upgraded its ratings on the Series A and Series B Notes to AA (high) (sf) from AA (low) (sf), and to B (low) (sf) from CCC (low) (sf), respectively.

The last rating action on the CJP4 transaction took place on 21 March 2022, when DBRS Morningstar finalised its provisional ratings on the Series A and Series B Notes at AA (sf) and CCC (low) (sf), respectively.

The lead analyst responsibilities for CJP4 have been transferred to Helvia Meana.

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):

-- PD Rates Used: Base-case PD of 2.6% and 3.3% for CJP3 and CJP4, respectively, a 10% increase of the base case and a 20% increase of the base-case PD.
-- Recovery Rates Used: Base-case recovery rate of 27.4% at the AAA (sf) rating level and 42.6% at the B (low) (sf) rating level, for the Series A Notes and Series B Notes, respectively for CJP3; Base-case recovery rate of 26.0% at the AAA (sf) rating level and 38.3% at the CCC (high) (sf) rating level, for the Series A Notes and Series B Notes, respectively for CJP4, and a 10% and 20% decrease in the base-case recovery rates. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery-rate levels.

For CJP3, DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20%, ceteris paribus, would lead to a confirmation of the Series A Notes at AAA (sf) and a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would also lead to a confirmation of the Series A Notes at AAA (sf). A scenario combining both a hypothetical increase in the PD by 10% and a hypothetical decrease in the recovery rate by 10%, would also lead to a confirmation of the Series A Notes at AAA (sf).

For the Series B Notes, DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20%, ceteris paribus, would lead to a confirmation of the Series B Notes at B (low) (sf), and a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a downgrade of the Series B Notes to CCC (high) (sf). A scenario combining both an increase in the base case PD by 10% and a decrease in the base case recovery rate by 10%, ceteris paribus, would lead to a confirmation of the Series B Notes at B (low) (sf).

For CJP4, 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 AA (high) (sf) and a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would also lead to a downgrade of the Series A Notes to AA (high) (sf). A scenario combining both a hypothetical increase in the PD by 10% and a hypothetical decrease in the recovery rate by 10%, would also lead to a downgrade of the Series A Notes to AA (high) (sf).

For the Series 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 Series B Notes to CCC (sf), and a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a confirmation of the Series B Notes at CCC (high) (sf). A scenario combining both an increase in the base case PD by 10% and a decrease in the base case recovery rate by 10%, ceteris paribus, would lead to a confirmation of the Series B Notes at CCC (high) (sf).

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: Helvia Meana, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Dates:
-CJP3: 30 March 2021
-CJP4: 15 March 2022

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: 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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