DBRS Upgrades Rating on Caja Rural de Granada Covered Bond Programme to A (high)

DBRS Ratings Limited (DBRS) has today upgraded the rating on the Cédulas Hipotecarias (CH or the Spanish mortgage covered bonds) issued by Caja Rural de Granada Covered Bond Programme (CRG or the Issuer) to A (high) from BBB following the implementation of the DBRS “Rating European Covered Bonds” methodology published on 17 December 2014 (the Methodology).

The rating action reflects a material update to the methodology DBRS uses to rate and monitor European covered bonds. The Methodology supersedes the previous methodology “Rating European Covered Bonds” published 30 January 2014.

The upgrade of the CH to A (high) from BBB also follows the completion of the annual review on the programme and is based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of BBB (low), being the Issuer and Senior Debt and Deposit rating of CRG. CRG is the Issuer and Reference Entity for the programme.
-- A legal and structuring framework (LSF) assessment of Average assigned to the CH.
-- A Cover Pool Credit Assessment (CPCA) of “A,” being the lowest CPCA in line with the covered bonds rating.
-- An LSF-implied likelihood (LSF-L) of A (low).
-- Two notches uplift for high recovery prospects.
-- A level of overcollateralization (OC) that DBRS gives credit to of 134%, being the minimum observed OC level during the past 12 months adjusted by a scaling factor of 0.90.

The transaction was modelled with the DBRS European Covered Bond Cash Flow Model. 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.

Everything else equal, a downgrade of the Issuer Rating by one notch would lead to a downgrade of the LSF-L by three notches, resulting in a downgrade of the covered bonds rating by three notches.

In addition everything else equal, the ratings of the CH would be downgraded if any of the following occurs: (1) the CPCA were downgraded below “A,” (2) the sovereign rating of the Kingdom of Spain were downgraded below A (low), (3) the LSF assessment associated with the programme were downgraded, (4) the quality and consistency of the cover pool were no longer sufficient to support two notches uplift for high recovery prospects or (5) volatility in the financial markets caused the currently estimated market value spreads to be increased.

As at 31 October 2014, the total outstanding amount of CH is €0.6 billion, while the aggregate balance of the mortgages in the cover pool is €1.49 billion, resulting in a total OC of 148%.

For further information on CRG, please refer to the ratings report that can be found on www.dbrs.com.

DBRS has assessed the LSF related to CRG as Average according to its rating methodology. This is in line with the DBRS LSF assessment for other Spanish CH programmes. For more information, please refer to the DBRS Commentary “Spanish Mortgage Covered Bonds: Legal and Structuring Framework Review” and “DBRS Assigns Legal and Structuring Framework Assessment to Spanish Mortgage Covered Bonds Programmes,” available at www.dbrs.com.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is: Rating European Covered Bonds (December 2014). This can be found at http://www.dbrs.com/about/methodologies. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary The Effect of Sovereign Risk on Securitisations in the Euro Area at http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include historical default performance data and cover pool stratification tables provided by CRG that allowed DBRS to further assess the portfolio. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

The last rating action on this programme took place on 23 December 2014, when DBRS assigned a new rating to CRG.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.

For further information on DBRS historic default rates published by the European Securities and Markets Administration in a central repository, see
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: Covadonga Aybar
Initial Rating Date: 23 December 2013
Initial Rating Committee Chair: Claire Mezzanotte

Lead Analyst: Covadonga Aybar
Rating Committee Chair: Quincy Tang

DBRS Ratings Limited
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United Kingdom

Registered in England and Wales: No. 7139960

The rating methodologies and criteria used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

• Rating European Covered Bonds
• Global Methodology for Rating Banks & Banking Organisations
• Legal Criteria for European Structured Finance Transactions
• Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
• Rating CLOs Backed by Loans to European Small and Medium-Sized Enterprises (SMEs)
• Master European Structured Finance Surveillance Methodology
• Operational Risk Assessment for European Structured Finance Servicers
• Unified Interest Rate Model Methodology for European Securitisations