DBRS Finalises Provisional Ratings of IM GBP Empresas VI, FTA

DBRS Ratings Limited (DBRS) has today finalised its provisional ratings to the following notes issued by IM GBP Empresas VI, FTA (the Issuer):

-- EUR 2,340 million Series A Notes at A (sf) (the Series A Notes)
-- EUR 660 million Series B Notes at CCC (low) (sf) (the Series B Notes; together, the Notes)

The transaction is a cash flow securitisation collateralised by a portfolio of bank term loans originated by Banco Popular Español, S.A. (Banco Popular) and Banco Pastor, S.A.U. (Banco Pastor; together, the Originators) to small and medium-sized enterprises (SMEs) and self-employed individuals based in Spain. As of 25 March 2015, the transaction’s securitised portfolio included 43,638 loans to 34,104 obligors groups, totalling EUR 3,000 million.

The rating on the Series A Notes addresses the timely payment of interest and the ultimate payment of principal payable on or before the Legal Maturity Date in January 2046. The rating on the Series B Notes addresses the ultimate payment of interest and principal payable on or before the Legal Maturity Date in 2046.

The securitised pool exhibits low industry and obligor concentration. The top three industries based on the DBRS industry classification are Building & Development (15.1% of the portfolio balance), Business Equipment & Services (10.4%) and Surface Transport (6.8%). The top obligor and the largest ten obligor groups represent 0.4% and 2.6% of the outstanding balance, respectively. The portfolio also exhibits low regional concentration; the top three regions for borrower concentrations are Catalonia, Madrid and Andalusia, representing approximately 18.9%, 16.6% and 14.8% of the portfolio balance, respectively.

These ratings are based on DBRS’s review of the following items:
-- The portfolio characteristics, the transaction structure as well as the form and sufficiency of available credit enhancement.
-- At closing, the Series A Notes benefit from a total credit enhancement of 25.0%, which DBRS considers to be sufficient to support the A (sf) rating. The Series B Notes benefit from a credit enhancement of 3.0%, which DBRS considers to be sufficient to support the CCC (low) (sf) rating. Credit enhancement is provided by subordination and the Reserve Fund (RF). In addition, the Notes also benefit from available excess spread.
-- The RF is non-amortising along the life of the transaction. The RF has a balance of EUR 90 million, 3% of the aggregate balance of the Notes and is available to cover shortfalls in the senior expenses and interest on the Series A Notes and once the Series A Notes are fully paid, interest on the Series B Notes throughout the life of the Notes. The RF will only be available as credit support for the Notes at the Legal Final Maturity.
-- DBRS considers that there are inadequate mitigants to the commingling risk. To address this risk, DBRS’s analysis includes a stress equivalent to the interruption of interest and principal proceeds for a period of six months by assuming senior expenses and interest on the Series A Notes would be paid from the Cash Reserve for this period.
-- The transaction parties’ financial strength and capabilities to perform their respective duties and the quality of origination, underwriting and servicing practices.
-- An assessment of the operational capabilities of key transaction participants.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the approved terms. Interest and principal payments on the Series A Notes will be made quarterly on the 22nd day of January, April, July and October, with the first payment date on 22 July 2015.
-- The soundness of the legal structure and the presence of legal opinions that address the true sale of the assets to the trust and the non-consolidation of the special-purpose vehicle as well as consistency with DBRS’s “Legal Criteria for European Structured Finance Transactions.”

DBRS determined these ratings as follows, as per the principal methodology specified below:
-- The annualised probability of default (PD) for the Originators was determined using the historical performance information supplied. DBRS assumed an annualised PD of 2.56% for this transaction.
-- The assumed weighted-average life (WAL) of the portfolio was 2.65 years.
-- The PD and WAL were used in the DBRS Diversity Model to generate the hurdle rate for the target ratings.
-- DBRS applied the following recovery rates: 16.3% for the Series A Notes and 20.8% for Series B Notes as the portfolio is composed exclusively of senior unsecured loans.
-- The break-even rates for the interest rate stresses and default timings were determined using the DBRS cash flow model.

DBRS published a Request for Comments for the Rating CLOs and CDOs of Large Corporate Credit methodology on February 4th. The proposed methodology includes revised recovery rates at BB and below stress levels. More specifically, the senior unsecured recovery rates for the Series B notes is expected to increase from 20.8% to 21.5%. If the methodology is published in its current proposed form, DBRS does not expect there to be any impact on its ratings for the Series A and Series B Notes.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is Rating CLOs Backed by Loans to European Small and Medium-Sized Enterprises (SMEs), which can be found at www.dbrs.com. 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 Securitisation in the Euro Area” at http://www.dbrs.com/research/239786/the-effect-of-sovereign-risk-on-securitisations-in-the-euro-area.pdf.

The sources of information used for this rating include the parties involved in the rating, including but not limited to the Originators, Banco Popular Español, S.A, and Banco Pastor, S.A.U.; the Issuer; and Intermoney Titulización S.G.F.T., S.A. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS determined key inputs used in its analysis based on historical performance data provided for the Originator and Servicer as well as analysis of the current economic environment. Further information on DBRS’s analysis of this transaction will be available in a rating report at www.dbrs.com or by contacting DBRS at info@dbrs.com.

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.

These ratings concern a newly issued financial instrument. It should be noted that provisional ratings were previously assigned before the Notes were issued.

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

To assess the impact a change of the transaction parameters would have on the ratings, DBRS considered the following stress scenarios, as compared with the parameters used to determine the rating (the base case):
-- PD rates used: base case PD of 2.56%, a 10% increase of the base case and a 20% increase of the base case PD.
-- Recovery rates used: base case recovery rates of 16.3% at the A (sf) stress level and 20.8% at the CCC (low) (sf) stress level for the Series A Notes and Series B Notes, respectively, a 10% and 20% decrease in the base case recovery rates.

DBRS concludes that a hypothetical increase of the base case PD by 20% would lead to a downgrade of the Series A Notes to A (low) (sf) and a hypothetical decrease of the recovery rate by 20% does not have any impact on the rating of the Series A Notes. A scenario combining both an increase in the base case PD by 10% and a decrease in the base case recovery rate by 10% does not have any impact on the rating of the Series A Notes.

Regarding the Series B Notes, a hypothetical increase of the base case PD by 20% or a hypothetical decrease of the base case recovery rate by 20% do not have any impact on the rating of the Series B Notes. A scenario combining both an increase in the base case PD by 10% and a decrease in the base case recovery rate by 10% does not have any impact on the rating of the Series B Notes.

It should be noted that the interest rates and other parameters that would normally vary with rating level, including the recovery rates, were allowed to change as per DBRS methodologies and criteria.

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

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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

Initial Lead Analyst: María López
Initial Rating Date: 26 March 2015
Initial Rating Committee Chair: Jerry Van Koolbergen

DBRS Ratings Limited
1 Minster Court, 10th Floor
Mincing Lane
London, EC3R 7AA
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 CLOs Backed by Loans to European Small and Medium-Sized Enterprises (SMEs)
-- Legal Criteria for European Structured Finance Transactions
-- Unified Interest Rate Model for U.S. and European Structured Credit
-- Operational Risk Assessment for European Structure Finance Servicers
-- Cash Flow Assumptions for Corporate Credit Securitizations
-- Rating Methodology for CLOs and CDOs of Large Corporate Credit