DBRS Confirms Ratings on Caja Rural de Granada Covered Bond Programme, Removes UR-Developing

DBRS Ratings Limited (DBRS) has today confirmed its A (high) rating on the Cédulas Hipotecarias (CH or the Spanish mortgage covered bonds) issued by Caja Rural de Granada Sociedad Cooperativa de Credito (CRG or the Issuer) and has removed the rating from Under Review with Developing Implications.

The rating action follows the finalisation of the review of the credit DBRS gives to sovereign support in its financial institution analysis, as a result of the recent developments in European regulation and legislation regarding the Bank Recovery and Resolution Directive on 29 September 2015, as well as the publication on 8 September 2015 of the updated “Rating European Covered Bonds” methodology.

The rating is based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of BBB. CRG is the Issuer and Reference Entity for the programme.
-- A Legal and Structuring Framework (LSF) Assessment of Average associated with CRG CH.
-- A Cover Pool Credit Assessment (CPCA) of BBB (low), being the lowest CPCA in line with the covered bonds rating.
-- A LSF-Implied Likelihood (LSF-L) of A (low).
-- A two-notch uplift for high recovery prospects.
-- A level of overcollateralisation (OC) of 124% that DBRS gives credit to, being the minimum observed OC level during the past 12 months adjusted by a scaling factor of 0.90.

The transaction was modelled using 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 being equal, a downgrade of the CBAP by one notch would lead to a downgrade of the LSF-L by one notch, resulting in a downgrade of the covered bonds rating by one notch. In addition, everything else being equal, the CH ratings would be downgraded if any of the following occurred: (1) the CPCA were downgraded below BBB (low); (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 (CP) were no longer sufficient to support a two-notch uplift for high recovery prospects; or (5) volatility in the financial markets were to cause the currently estimated market value spreads to increase.

The total outstanding amount of CH is EUR 600 million, while the aggregate balance of the mortgages in the cover pool is EUR 1.43 billion (as of September 2015), resulting in a total OC of 138%. The eligible cover pool stands at EUR 1.03 billion, resulting in an eligible OC of 72%.

For further information on Caja Rural de Granada CH, please refer to the ratings report available on www.dbrs.com.

DBRS has assessed the LSF related to CRG CH as Average according to its rating methodology. For more information, please refer to the DBRS Commentary “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 principal methodology applicable is “Rating European Covered Bonds” (September 2015). This can be found at http://www.dbrs.com/about/methodologies. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

In DBRS’s opinion, the change under consideration does not require the application of the entire principal methodology. Therefore, an asset and cash flow analysis was not conducted. A review of the transaction legal documents was not conducted, as the documents have remained unchanged since the most recent rating action.

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 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 loan by loan data provided by CRG 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 rely upon third-party due diligence in order to conduct its analysis; DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

The last rating action on this programme took place on 26 May 2015, when DBRS place CRG’s CH ratings Under Review with Developing Implications.

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 (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: Covadonga Aybar
Initial Rating Date: 23 December 2013
Initial Rating Committee Chair: Claire Mezzanotte

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

A description of how DBRS methodologies are collectively applied can be found at http://www.dbrs.com/research/278375.

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.