DBRS Assigns Provisional Ratings to Foncaixa PYMES 6, FT

DBRS Ratings Limited (DBRS) has today assigned provisional ratings to the following notes issued by Foncaixa PYMES 6, FT (the Issuer):

-- EUR 918.4 million Series A Notes: A (low) (sf) (the Series A Notes)
-- EUR 201.6 million Series B Notes: CCC (low) (sf) (the Series B Notes, together, the Notes)

The transaction is a cash flow securitisation collateralised by a portfolio of term loans and drawn amounts on credit lines originated by Caixabank, S.A. (Caixabank or the Originator) to small and medium-sized enterprises (SMEs) and self-employed individuals based in Spain. As of 21 September 2015, the transaction’s provisional portfolio included 32,613 loans and credit lines to 28,734 obligors, totalling EUR 1,196.5 million. The portfolio results from the outstanding balance of three previous Caixabank’s transactions which were called on October 9th: Foncaixa Autónomos 1, FTA; Foncaixa PYMES 3, FTA and Foncaixa PYMES 4.

At closing, the Originator will select the final portfolio of EUR 1,120 million from the above-mentioned provisional pool.

The rating on the Series A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the Legal Maturity Date in July 2050. The rating on the Series B addresses the ultimate payment of interest and the ultimate payment of principal on or before the Legal Maturity Date in July 2050.

The provisional pool is moderately exposed to the top three industry sectors by DBRS industry definition which include “Business Equipment & Services”, “Building & Development” and “Retailers (except food & drug)”, representing 16.4%, 14.9% and 7.6% of the portfolio outstanding balance, respectively. The provisional portfolio exhibits low obligor concentration; however, the largest obligor represents 1.48% of the outstanding balance. The largest ten obligor groups represent 5.8% of the outstanding balance. The top three regions for borrower concentration are Catalonia, Madrid and Andalusia, representing approximately 27.5%, 14.3% and 9.9%, of the portfolio balance, respectively.

The above ratings are provisional. Final ratings will be issued upon receipt of executed versions of the governing transaction documents. To the extent that the documents and information provided by Foncaixa PYMES 6, FT, GestiCaixa, S.G.F.T., S.A. and Caixabank, S.A. to DBRS as of this date differ from the executed versions of the governing transaction documents, DBRS may assign lower final ratings to the Notes or may avoid assigning final ratings to the Notes altogether.

These ratings are based upon DBRS’s review of the following items:
-- The transaction structure, the form and sufficiency of available credit enhancement and the portfolio characteristics.
-- At closing, the Series A Notes benefit from a total credit enhancement of 22%, which DBRS considers to be sufficient to support the A (low) (sf) rating. The Series B Notes benefit from a credit enhancement of 4%, which DBRS considers to be sufficient to support the CCC (low) (sf) rating. Credit enhancement is provided by subordination and the Reserve Fund.
-- The Reserve Fund will be allowed to amortise after the first two years if certain conditions – relating to the performance of the portfolio and deleveraging of the transaction – are met. The Reserve Fund cannot amortise below EUR 22.4 million.
-- 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 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 25th day of January, April, July and October, with the first payment date being on 25 January 2016.
-- The soundness of the legal structure and the presence of legal opinions which 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” methodology.

DBRS determined these ratings as follows, as per the principal methodology specified below:
-- The probability of default (PD) for the Originator was determined using the historical performance information supplied; however, the mentioned data covers the five years from 2010 until 2015, and 50.3% of the portfolio balance was originated before 2010. DBRS determined the PD combining the historical performance information supplied for the portion of the portfolio originated after 2010 and the PDs that DBRS used for the original transactions for the portfolio originated before 2010. DBRS assumed a combined annualised PD of 2.25%.
-- The assumed weighted-average life (WAL) of the portfolio was 4.5 years.
-- The PD and WAL were used in the DBRS Diversity Model to generate the hurdle rate for the target ratings.
-- The recovery rate was determined by considering the market value declines (MVDs) for Spain, the security level and type of the collateral. For the Series A Notes, DBRS applied the following recovery rates: 54.9% for secured loans and 16.3% for unsecured loans. For the Series B Notes, DBRS applied the following recovery rates: 65.6% for secured loans and 21.5% for unsecured loans.
-- The break-even rates for the interest rate stresses and default timings were determined using the DBRS cash flow model.

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)”. DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

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

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

The sources of information used for this rating include the parties involved in the rating, including but not limited to the Originator, Caixabank S.A., the Issuer and GestiCaixa S.G.F.T., S.A.

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 supplied with an AUP report. Data checks were performed, and DBRS did not apply additional cash flow stresses in its scenarios.

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. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

Further information on DBRS’s analysis of this transaction will be available in a rating report on http://www.dbrs.com or by contacting us 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 newly issued financial instruments.

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):
-- Probability of Default Rates Used: Base Case PD of 2.25%, a 10% increase of the base case and a 20% increase of the base case PD.
-- Recovery Rates Used: Base Case Recovery Rates of 33.0% at the A (low) (sf) stress level and 40.3% at the CCC (low) (sf) stress level for the Class A Notes and Class 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% or a hypothetical decrease of the recovery rate by 20% would lead to a downgrade of the Series A Notes to BBB (high) (sf). A scenario combining both an increase in the Base Case PD by 10% and a decrease in the Base Case Recovery Rate by 10% would lead to a downgrade of the Series A Notes to BBB (high) (sf).

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% would 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% would 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 the rating level, including the recovery rates, were allowed to change as per the DBRS methodologies and criteria.

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/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: 15 October 2015
Initial Rating Committee Chair: Jerry van Koolbergen

DBRS Ratings Limited
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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”
“Operational Risk Assessment for European Structure Finance Servicers”
“Cash Flow Assumptions for Corporate Credit Securitizations”
“Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda”

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