DBRS Assigns Rating to Cajas Rurales Unidas Cédulas Hipotecarias New Issuance

DBRS Ratings Limited (DBRS) has today assigned a rating of A (high) to a new covered bond (ES0422714032) issued by Cajas Rurales Unidas (CRU). The new issuance is a EUR 750 million fixed-rate security maturing in January 2022. At the same time, DBRS has confirmed the A (high) ratings on the outstanding Cédulas Hipotecarias (CH or the Spanish mortgage covered bonds).

The ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point reflective of CRU’s likelihood to meet its payment obligations on the CH. CRU is the Issuer and Reference Entity for the programme.
-- A legal and structuring framework (LSF) assessment of Average assigned to CRU 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 overcollateralisation (OC) to which DBRS gives credit of 148%, 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 increase.

Following the issuance, the total outstanding amount of CH is EUR 5.25 billion, while the aggregate balance of mortgages in the cover pool is EUR 18.67 billion (as of December 2014), resulting in an OC of 255.7%. Currently, CRU has a remaining issuance capacity of roughly EUR 2.99 billion.

As of September 2014, the cover pool comprises 176,230 mortgage loans with a weighted-average (WA) current unindexed loan-to-value ratio of 64% with 58.9% residential, 25.6% commercial, 10% developers and 5.5% land and other types of loan. This is a 69-month seasoned pool, geographically distributed in Spain among CRU’s main areas of influence: Andalucía (38%), Valencia (27.5%) and Murcia (15%).

The vast majority of the loans (96.6%) in the cover pool are floating rate, while 94.6% of the liabilities pay fixed coupon. As is customary in Spanish CH, there are no swaps in place for the benefit of the CH holder. The WA life of the assets is roughly 12.0 years, whereas the WA life of the CH is roughly 3.2 years after the issuance, producing a mismatch of approximately nine years.

For further information on CRU CH, please refer to the rating report that can be found at www.dbrs.com.

DBRS has assessed the LSF related to CRU as Average according to its rating methodology. For more information, please refer to the DBRS commentaries “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 applicable methodology is Rating European Covered Bonds (December 2014), which can be found on our website under 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 CRU 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 17 December 2014, when DBRS upgraded ratings on CRU CH to A (high).

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: 19 July 2013
Initial Rating Committee Chair: Quincy Tang

Lead Analyst: Covadonga Aybar
Rating Committee Chair: Quincy Tang

DBRS Ratings Limited
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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 (December 2014)
-- Global Methodology for Rating Banks and Banking Organisations (June 2014)
-- Legal Criteria for European Structured Finance Transactions (December 2014)
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (January 2015)
-- Rating CLOs Backed by Loans to European Small and Medium-Sized Enterprises (SMEs) (December 2014)
-- Master European Structured Finance Surveillance Methodology (December 2014)
-- Operational Risk Assessment for European Structured Finance Servicers (January 2015)
-- Unified Interest Rate Model for European Securitisations (June 2013)