DBRS Assigns A (high) Rating to Cajas Rurales Unidas Cédulas Hipotecarias New Issuance

DBRS Ratings Limited (DBRS) has today assigned an A (high) rating to a new covered bond (ES0422714040) issued by Cajas Rurales Unidas Sociedad Cooperativa de Crédito (CRU or the Issuer). The new issuance is a EUR 750 million fixed-rate security maturing in October 2020. At the same time, DBRS has confirmed the A (high) ratings on the outstanding Cédulas Hipotecarias (CH or the Spanish mortgage covered bonds) issued by CRU.

The rating is based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) reflective of the likelihood that the source of payments will switch from the Reference Entity to the Cover Pool (CP). CRU is the Issuer and Reference Entity for the programme.
-- A Legal and Structuring Framework (LSF) Assessment of Average associated with CRU 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 148% that DBRS gives credit to, being the minimum observed OC level during the past 12 months adjusted by a scaling factor of 0.90 times.

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 CP.

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 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.

Following the issuance, the total outstanding amount of CH is EUR 5.8 billion, while the aggregate balance of the mortgages in the CP is EUR 18.18 billion (as of August 2015), resulting in a total OC of 213%. The eligible CP stands at EUR 9.93 billion, resulting in an eligible OC of 71%.

As of June 2015, the CP is comprised of 176,728 mortgage loans with a weighted-average current unindexed loan-to-value ratio of 66.5%, with a 60% residential, 26% commercial, 9% developer and 5% land loans split. It is geographically distributed among CRU’s main areas of influence: Andalusia (33%), Community of Valencia (27%) and Murcia (17%). The pool is 73 months seasoned.

The vast majority of the loans in the CP (approximately 96.8%) are floating rate, while 94.5% of the liabilities pay a fixed coupon. As customary in Spanish CH, swaps are not for the benefit of the CH holders. This has been accounted for in the DBRS cash flow modelling. The weighted-average life of the assets is roughly 12 years, while that of the CH is 2.9 years. This generates an asset-liability mismatch that is partly mitigated by the available OC.

For further information on CRU CH, please refer to the ratings report available on www.dbrs.com.

DBRS has assessed the LSF related to CRU 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.

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 stratification tables provided by CRU 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 19 October 2015, when DBRS confirmed CRU CH’s ratings and resolved the Under Review with Developing Implications status.

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 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: 19 July 2013
Initial Rating Committee Chair: Quincy Tang

Lead Analyst: Covadonga Aybar
Rating Committee Chair: Quincy Tang

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 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 European 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.