DBRS Finalises Provisional Rating of Notes Issued by BBVA RMBS 15 FTA

DBRS Ratings Limited (DBRS) has today finalised its provisional rating of the following notes issued by BBVA RMBS 15 FTA:

-- A (sf) to €3,280,000,000 issuance of Notes

BBVA RMBS 15 FTA (BBVA 15) is a securitisation of a portfolio of prime residential mortgage loans and secured by first ranking lien mortgages on properties in Spain, originated by Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) (A/Stable/R-1L/Stable). At the closing date of the transaction, BBVA 15 will use the proceeds from the issuance of the Notes and the Loan B to fund the purchase of the mortgage portfolio. In addition, the issuance of a subordinated loan will fund the reserve fund. The securitisation will take place in the form of a fund, in accordance with Spanish Securitisation Law.

The ratings are based upon a review by DBRS of the following analytical considerations:

-- Transaction’s capital structure and the form and sufficiency of available credit enhancement. The rated Notes benefit from 22% of credit enhancement in the form of the €720 million (18%) subordination of the Loan B notes and €160 million (4%) of the reserve fund, which is available to cover senior fees, interest and principal of the Notes. The Notes also benefit from a fully sequential amortisation, where principal on the Loan B will not be paid until the Notes have been redeemed in full.

-- The main characteristics of the portfolio (as of 14 April 2015 cut-off date) include: (1) 64.3% weighted-average current unindexed loan–to-value (WA CLTV) and 90.1% indexed WA CLTV (INE HPI Q1 2015); (2) top three portfolio geographical concentrations by property are: Andalusia (19.3%), Madrid (18.4%) and Catalonia (17.3%); (3) 12.1% of the borrowers are classified as self-employed and 17.8% as other employment types which DBRS considers in terms of risk profile similar to self-employed; (4) 2.4% of non-national borrowers; (5) a high weighted-average seasoning of 5.8 years, with 41.4% of the loans originated in 2010; and (7) 100% of the purpose of the loan was purchase of the property.

-- Most of the securitised mortgages products benefit from flexible loan features with options such as (1) reduce the loan margin, (2) apply for grace periods, (3) change the type of interest rate, (4) extend the loan maturity or (5) change the amortisation profile from French amortisation to French amortisation with a balloon payment. In addition to these features linked to the loan contracts the transaction documentation allows for permitted variations which allow the servicer to renegotiate the margin or maturity of the outstanding loans at request of the borrower within certain limits, e.g. the weighted average margin of the portfolio is not allowed to fall below 0.65% and only up to 10% of the original outstanding loan balance can benefit from maturity extensions.
-- 99.5% of the mortgage portfolio pays a variable interest rate linked to 12-month Euribor and the remaining 0.5% pay a rate linked to IRPH. In contrast to the mortgage portfolio, the issued notes and loans variable interest rates are linked to 3-month Euribor. DBRS considers there to be limited basis risk in the transaction which is mitigated by (1) the historical positive spread between 12- and 3-month Euribor in favour of 12-month Euribor; (2) the monies standing to the credit of the reserve fund; and (3) the available credit enhancement to cover for potential shortfalls from that mismatch. DBRS stressed the existing risk in its cash flow modelling.

-- When assigning the Notes rating, DBRS took into account the credit quality of the transaction account bank, paying agent and servicer (all roles performed by BBVA) and the respective replacement triggers in place. According to the transaction documents the management company would need to (1) replace BBVA with an eligible counterparty as treasury account bank and paying agent or (2) find an eligible guarantor if BBVA’s long term rating was downgraded below BBB. At the same time BBVA would need to provide solution (1) from above or (2) assigned a back-up servicer or (3) fund a commingling reserve in line with DBRS criteria in its role as the portfolio’s servicer, if BBVA’s long term rating was downgraded below BBB (low). According to DBRS’s criteria the BBB account bank replacement trigger is in line with a maximum achievable rating of A (sf).

-- The legal structure and presence of legal opinions addressing the assignment of the assets to the issuer and the consistency with the DBRS Legal Criteria for European Structured Finance Transactions.

As a result of the analytical considerations DBRS derived a base case Probability of Default (PD) of 3.98% and Loss Given Default (LGD) of 31.16%, which resulted in an Expected Loss (EL) of 1.24%.

DBRS cash flow model assumptions focus on the amount and timing of defaults and recoveries, prepayment speeds and interest rates. Based on a combination of these assumptions, a total of 16 cash flow scenarios were applied to test the capital structure and derive the rating of the Notes.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is “Master European Residential Mortgage-Backed Securities Rating Methodology and the Jurisdictional Addendum”.
Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

These can be found on www.dbrs.com at:
http://www.dbrs.com/about/methodologies

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

The sources of information used for this rating include BBVA and Europea de Titulización, S.A., SGFT. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not rely upon third-party due diligence in order to conduct its analysis; however, Agreed upon Procedures (AUP) are included in the requested documentation. DBRS was not provided with an AUP for the final rating analysis.

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.

This rating concerns a newly issued financial instrument. This is the first DBRS rating on this financial instrument.

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

To assess the impact of potential changes in the transaction’s parameters on the ratings, DBRS considered two additional stresses assuming a 25% and 50% increase in both the PD and LGD assumptions for the Notes.

DBRS sensitivity analysis concluded that none of the potential nine scenarios would have changed the assigned rating of A (sf).

For further information on DBRS 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.

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

Initial Lead Analyst: Sebastian Hoepfner, Vice President
Initial Rating Date: 7 May 2015
Initial Rating Committee Chair: Quincy Tang, Managing Director

Lead Surveillance Analyst: Elisa Scalco, Assistant Vice President

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960

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

Legal Criteria for European Structured Finance Transactions
Operational Risk Assessment for European Structured Finance Servicers
Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
Unified Interest Rate Model for European Securitisations

A description of how DBRS analysis structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375