DBRS Upgrades, Removes from URP and Confirms Ratings on Notes Issued by Foncaixa PYMES 3, FTA

DBRS Ratings Limited (DBRS) has today confirmed, upgraded and removed from Under Review with Positive Implications its ratings on the notes issued by Foncaixa PYMES 3, FTA (the Issuer), as follows:

-- €434,262,348 Series A Notes: confirmed at A (sf)
-- €360,000,000 Series B Notes: upgraded to BBB (high) (sf) from BB (high) (sf) UR-Positive, removing UR-Positive

The transaction is a cash flow securitisation collateralised primarily by a portfolio of unsecured bank loans originated by CaixaBank, S.A. to self-employed individuals and small and medium-sized enterprises (SMEs) based in Spain. The rating on the Series A Notes addresses the timely payment of interest, as defined in the transaction documents, and the ultimate payment of principal on each payment date during the transaction, and, in any case, at their Legal Final Maturities in July 2046. The rating on the Series B Notes addresses the ultimate payment of interest, as defined in the transaction documents, and the ultimate payment of principal on each payment date during the transaction, and, in any case, at their Legal Final Maturities in July 2046.

The rating actions reflect an annual review of the transaction. Since closing, the Series A Notes have been amortising and are at 21.29% of their initial balance. The Series B Notes will start to amortise once the Series A Notes have fully paid down. Given this deleveraging, the current credit enhancement available has increased considerably, while the transaction performance is in line with DBRS’s expectations. The confirmation also takes into account the counterparty risk of the transaction due to the fact that Caixabank acts as servicer, account bank provider –also holding the reserve fund -, and paying agent. As of the 15 April 2015 payment date, the amount of the reserve fund was €240,000,000.

The cumulative outstanding balance of defaulted claims as of 31 March 2015 as per the transaction definition was 2.28% of the initial outstanding balance of the portfolio.

The current rating actions conclude the review of the Series B Notes after being placed Under Review with Positive Implications on 7 April 2015 due to material updates to the methodology DBRS uses to rate and monitor CLOs and CDOs backed by debt of larger corporations (see Rating CLOs and CDOs of Large Corporate Credit published 7 April 2015).

The portfolio annualised probability of default (PD) used has not changed (2.52%).

The principal methodology applicable is “Rating CLOs Backed by Loans to European Small and Medium-Sized Enterprises (SMEs)”, which can be found on the DBRS website under Methodologies 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’s “The Effect of Sovereign Risk on Securitisations in the Euro Area” commentary on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

The sources of information used for these ratings include the parties involved in the ratings, including but not limited to the Originator, the Issuer and their agents.

DBRS considers the information made available to it for the purposes of providing these ratings to have been 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.

To assess the impact of changing the transaction parameters on the ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the ratings (the Base Case):
-- Probability of Default Rates Used: Base Case PD of 2.52%, a 10% and 20% increase on the Base Case PD.
-- Recovery Rates Used: Base Case Recovery Rates, corresponding to a recovery rate of 16.25% at the A (sf) stress level and 17.00% at the BBB (high) (sf) stress level, a 10% and 20% decrease in the Base Case Recovery Rates.

DBRS concludes that either a hypothetical increase of the base PD by 20% or a hypothetical decrease of the Recovery Rate by 20%, ceteris paribus, would produce model results suggesting a confirmation of the Series A and Series B Notes at A (sf) and at BBB (high) (sf), respectively. 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 model results suggesting a confirmation of the current ratings.
It should be noted that the interest rates and other parameters that would normally vary with the rating level, including the recovery rates, were allowed to change as per the DBRS methodologies and criteria.

The previous rating action on the Series A Notes took place on 17 April 2014, when the rating of the Notes was confirmed and removed from Under Review with Developing Implications. The previous rating action on the Series B Notes took place on 7 April 2015, when the rating of the Notes was placed Under Review with Positive Implications. Prior to that, the rating of the Series B Notes was also confirmed and removed from Under Review with Developing Implications on 17 April 2014.

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

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

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

Notes:
All figures are in euros unless otherwise noted.

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

Initial Lead Analyst: Carlos Silva
Initial Rating Date: 19 November 2012
Initial Rating Committee Chair: Jerry van Koolbergen
Last Rating Date: 7 April 2015

Lead Surveillance Analyst: Alfonso Candelas
Rating Committee Chair: Jerry van Koolbergen

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

Legal Criteria for European Structured Finance Transactions
Master European Structured Finance Surveillance Methodology
Rating CLOs Backed by Loans to European Small and Medium-Sized Enterprises (SMEs)
Rating CLOs and CDOs of Large Corporate Credit
Cash Flow Assumptions for Corporate Credit Securitizations
Operational Risk Assessment for European Structured Finance Servicers
Unified Interest Rate Model for U.S. and European Structured Credit
Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda