DBRS Assigns Provisional Ratings to IM BCC Cajamar 1

DBRS Ratings Limited (DBRS) has today assigned provisional ratings to the following notes to be issued by IM BCC Cajamar 1 (Cajamar 1 or the Issuer):

-- EUR 615,000,000 Series A at A (high) (sf)
-- EUR 135,000,000 Series B at C (sf) (collectively, the Notes)

The Issuer is expected to be a securitsation of residential mortgage loans secured by first- and second-ranking lien mortgages on properties in Spain originated by Cajamar. At the closing of the transaction, the Issuer will use the proceeds of the Series A and Series B notes to fund the purchase of the mortgage portfolio from the Seller, Cajamar. Cajamar will also be the servicer of the portfolio. In addition, Cajamar will provide a subordinated loan to fund for the initial expenses while Banco de Crédito Cooperativo will provide a subordinate loan to 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:
-- The transaction’s capital structure and the form and sufficiency of available credit enhancement. The Series A notes benefit from EUR 135 million (18%) subordination of the Series B notes and the EUR 22.5 million (3%) Reserve Fund, which is available to cover senior fees as well as interest and principal of the Series A notes until paid in full. The Reserve Fund target will remain at 3% of the initial balance of the Series A and Series B notes. The Series A notes will benefit from full sequential amortization, where principal on the Series B notes will not be paid until the Series A notes have been redeemed in full. Additionally, the Series A principal will be senior to the Series B interest payments in the priority of payments.
-- DBRS was provided with the provisional portfolio equal to EUR 816 million as of 31 December 2015. At closing, the portfolio balance will be equal to the balance of the Notes (EUR 750 million) by removing a random selection of covered bond eligible loans from the provisional portfolio. The main characteristics of the portfolio includes: (1) 68.7% weighted-average current loan-to-value (WACLTV) and 79.9% indexed WACLTV (INE Q3 2015); (2) the top three geographical concentration are in Andalucia (38.9%), Murcia (23.7%) and Valencia (13.2%); (3) 10.0% of the borrowers are classified as self-employed; (4) 4.1% of the borrowers are non-nationals; (5) weighted-average loan seasoning of 5.3 years; (6) the weighted-average remaining term of the portfolio is 25.7 years with 50.1% of the loans having a remaining term greater than 30 years; and (7) 4.2% of the loans are second liens where the first lien is also included in the securitised portfolio.
-- The loans are floating-rate mortgages primarily linked to 12-month Euribor (97.8%). Sixty percent of the portfolio is subject to an interest rate cap ranging from 5.0% to 28.0%, but most are capped at 15.0%. The Notes are floating-rate liabilities indexed to one-month Euribor. DBRS considers there is limited basis risk in the transaction, which is mitigated by (1) the payment frequency of the loans of which 97.8% are monthly, 1.4% pay semi-annually and the remainder either quarterly or annually and (2) the amounts credited to the Reserve Fund. DBRS stressed the interest rates as described in the DBRS methodology “Unified Interest Rate Model for European Securitisations.”
-- The credit quality of the mortgages backing the Notes and the ability of the servicer to perform its servicing responsibilities. DBRS was provided with Cajamar’s historical mortgage performance data separated between loans with an original LTV greater than 80% and loans with an original LTV equal to or less than 80% covering the period Q4 2010 through Q3 2015, as well as loan-level data for the mortgage portfolio. Details of the probability of default (PD), loss given default (LGD) and expected losses (EL) resulting from DBRS’s credit analysis of the mortgage portfolio at A (high) and C (sf) stress scenarios are detailed below. In accordance with the transaction documentation, the servicers are able to grant loan modifications without consent of the management company within the range of permitted variations. According to the documentation, permitted variations for up to 10% of the initial portfolio balance include the reduction of the loan margins down to a portfolio spread equal to 1.00% and maturity extension up to the final payment date in September 2055. DBRS stressed 10% of the portfolio to have a margin equal to 1.00% and extended the maturity up to September 2055 in its cash flow analysis.
-- The transaction’s account bank agreement and respective replacement trigger require Banco Santander, SA acting as the treasury account bank to find (1) a replacement account bank or (2) an account bank guarantor upon loss of an “A” rating. DBRS concluded that the assigned ratings are consistent with the account bank criteria.
-- 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” methodology.

As a result of the analytical considerations, DBRS derived a Base Case PD of 12.6% and LGD of 42.6%, which resulted in an EL of 5.5% using the European RMBS Credit Model. DBRS cash flow model assumptions stress the 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 ratings 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 Jurisdictional Addenda.”

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

Other methodologies referenced in this transaction are listed at the end of this press release. This may 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 Cajamar and Significa InterMoney Titulización SGFT, S.A.

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.

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.

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

To assess the impact of the changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

In respect of the Series A notes, the PD of 31.6% and LGD of 55.1%, corresponding to an A (high) (sf) stress scenario, were stressed assuming 25% and 50% increase on the PD and LGD:
-- A hypothetical increase of the PD of 25%, ceteris paribus, would lead to a downgrade to A (low) (sf).
-- A hypothetical increase of the PD of 50%, ceteris paribus, would lead to a downgrade to BBB (low) (sf).
-- A hypothetical increase of the LGD of 25%, ceteris paribus, would lead to a downgrade to A (low) (sf).
-- A hypothetical increase of the LGD of 50%, ceteris paribus, would lead to a downgrade to BBB (sf).
-- A hypothetical increase of the PD of 25% and LGD by 25%, ceteris paribus, would lead to a downgrade to BBB (low) (sf).
-- A hypothetical increase of the PD of 50% and LGD by 25%, ceteris paribus, would lead to a downgrade to BB (high) (sf).
-- A hypothetical increase of the PD of 25% and LGD by 50%, ceteris paribus, would lead to a downgrade to BB (high) (sf).
-- A hypothetical increase of the PD of 50% and LGD by 50%, ceteris paribus, would lead to a downgrade to BB (low) (sf).

The Series B ratings would not be impacted by a hypothetical change in either the PD or LGD.

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: Keith Gorman, Senior Vice President
Initial Rating Date: 15 January 2016
Initial Rating Committee Chair: Erin Stafford, Managing Director

Lead Surveillance Analyst: Kevin Ma

DBRS Ratings Limited
1 Minster Court, 10th Floor Mincing Lane, London EC3R 7AA
United Kingdom
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
-- Derivative Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators

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