DBRS Assigns AA (low) Ratings to CaixaBank Cédulas Hipotecarias

DBRS Ratings Limited (DBRS) has today assigned a rating of AA (low) to CaixaBank S.A. (CaixaBank or the Issuer) Cédulas Hipotecarias (CH, the Spanish mortgage covered bonds).

The ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of A (low). CaixaBank S.A. is the Issuer and Reference Entity for the programme.
-- A Legal and Structuring Framework (LSF) Assessment of Average associated with CaixaBank 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. In DBRS’s view, CaixaBank CH’s LSF-L is limited to one notch above the CBAP.
-- A two-notch uplift for high recovery prospects.
-- A level of overcollateralisation (OC) of 121% that DBRS gives credit to, being the minimum observed OC level during the past 12 months adjusted by a scaling factor of 0.85.

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 were no longer sufficient to support a two-notch uplift for high recovery prospects or (5) volatility in the financial markets caused the currently estimated market value spreads to increase.

DBRS has associated an LSF Assessment of “Average” to CaixaBank CH, which is line with the LSF Assessment of other Spanish CH programmes. The “Average” LSF Assessment associated with the CH programme reflects DBRS’s view of: (1) the satisfactory level of segregation provided by the CH legal framework and the CH holders’ first priority right on the entire mortgage book of the issuer, in combination with a residual commingling risk that DBRS considers limited;
(2) the absence of specific provisions and the uncertainty surrounding the timely liquidation of the CP to meet maturing CH in an assumed insolvency of the issuer as well as the lack of any short-term liquidity support, balanced by DBRS’s expectation of forthcoming regulator’s support and an ability to support the CB instrument in line with a Host Sovereign rated A (low), Positive Trend;
(3) the role of the Bank of Spain in the supervision of the Spanish CH, which oversees the banking business and the CH business of the issuer as a sole entity, combined with the absence of contingency plans specific to the continuation of the CH, high penetration of the CH as a funding tool for Spanish banks and an history of regulatory intervention in the re-arrestment of financial institutions during the last years, which in DBRS’s view, benefit CH holders due to the structural nature of Spanish CH.

The total outstanding amount of CH is EUR 48.7 billion, while the aggregate balance of the mortgages in the cover pool is EUR 122.8 billion (as of November 2015), resulting in a total OC of 152%. The eligible cover pool stands at EUR 64.4 billion, resulting in an eligible OC of 32%.

As of 30 September 2015, the cover pool amounts to EUR 124.3 billion split 76.7% residential, 14.7% commercial, 7.4% developers and 1.2% land. The cover pool is comprised of 1,442,978 mortgages with a weighted-average current unindexed loan-to-value ratio (WACLTV) of 53.9%. It is geographically distributed mainly in Catalonia (26%), Andalusia (18%) and Madrid region (15%), while 0.9% of the cover pool assets are located outside Spain. The pool is 94 months seasoned.

As customary in the Spanish market, the CH holders do not receive the benefit of any swap contract to hedge the mismatches between the interest yield by the cover pool (98.6% floating rate linked to different indexes and resets) and the interest due on the CH (54.2% paying fixed and 45.8% floating rate linked to different indexes and resets). The only foreign currency CH amounts to a nominal of USD 255 million, equivalent to roughly EUR 227.6 million at the spot rate as of 30 September 2015 (or 0.47% of the CH outstanding). 0.87% of the loans were originated in a currency other than euros. This residual exposure is mitigated by the OC available and accounted for in DBRS modelling.

The weighted-average life of the assets is roughly eleven years, while that of the covered bonds is roughly six years. This generates an asset-liability mismatch that is partly mitigated by the available OC.

For further information on CaixaBank CH, please refer to the rating report that will shortly be available on www.dbrs.com.

DBRS has assessed the LSF related to CaixaBank 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.

OC = (Cover Pool- CH)/ CH.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is “Rating European Covered Bonds” (December 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 these ratings include historical default performance data and cover pool stratification tables provided by CaixaBank that allowed DBRS to further assess the portfolio.

DBRS considers the information available to it for the purposes of providing these ratings 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.

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 CaixaBank CH.

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: 20 January 2016
Initial Rating Committee Chair: Quincy Tang

Lead Surveillance Analyst: Covadonga Aybar

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
-- Rating European Covered Bonds Addendum: Market Value Spreads Range (Midpoints)
-- Global Methodology for Rating Banks and Banking Organisations
-- DBRS Criteria: Support Assessments for Banks and Banking Organisations
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Unified Interest Rate Model for European Securitisations
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Operational Risk Assessment for European Structured Finance Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating CLOs and CDOs of Large Corporate Credit
-- Rating CLOs Backed by Loans to European Small and Medium-Sized Enterprises (SMEs)
-- The Effect of Sovereign Risk on Securitisations in the Euro Area
-- Sovereign Ratings Provide a Benchmark for other DBRS Credit Ratings

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