DBRS Assigns Provisional Ratings to Caixabank RMBS 1

DBRS Ratings Limited (DBRS) has today assigned provisional ratings to the following notes to be issued by Caixabank RMBS 1 (the Issuer):
-- EUR 12,851,000,000 Series A at A (sf)
-- EUR 1,349,000,000 Series B at C (sf)

The Issuer is expected to be a securitsation of residential mortgage loans secured by first-lien mortgages and “Crédito Abierto” drawdowns on properties in Spain originated by Caixabank. 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, Caixabank. Caixabank will also be the servicer of the portfolio. In addition, Caixabank will provide separate subordinated loans to fund each the initial expenses and 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 1,349 million (13.5%) subordination of the Series B notes and the EUR 568 million (4.0%) 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 will amortise with a target equal to the lower of 8% of the outstanding balance of the Series A and Series B notes and 4% of the initial balance of the Series A and Series B notes, subject to a floor of EUR 284 million. The Reserve Fund will not amortise if certain performance triggers are breached. The Series A notes will benefit from full sequential amortisation, 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 14,414 million as of 26 January 2016. At closing the portfolio balance will be equal to the balance of the notes (EUR 14,200 million). 75.9% of the portfolio are “Crédito Abierto” drawdowns where the borrower has the ability to withdraw further advances subject to borrower performance and eligibility criteria. Further draws will not be funded by the Issuer, however further draws will rank pari passu with the loans securitised by the Issuer. The main characteristics of the total portfolio includes: (1) 70.9% weighted-average current loan-to-value (WACLTV) and 108.7% indexed WA CLTV (INE Q3 2015); (2) the top three geographical concentrations of Catalonia (28.2%), Madrid (20.2%) and Andalusia (12.9%); (3) 3.7% of the borrowers are non-nationals; (4) weighted-average loan seasoning of 7.5 years; and (5) the weighted-average remaining term of the portfolio is 22.6 years with 22.3% of the loans having a remaining term greater than 30 years.
• The loans are floating-rate mortgages primarily linked to 12-month Euribor (88.4%). 8.5% of the portfolio is fixed with 3.0% paying a VPO rate which DBRS assumed to be fixed in its cash flow analysis. The notes are floating-rate liabilities indexed to three-month Euribor. The interest rate risk and basis risk is unhedged. Amounts standing in the Reserve Fund are available to cover the interest rate and basis risk for the rated notes. Additionally, the Series A notes benefit from the senior position in the priority of payments to the Series B notes. 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 Caixabank’s historical mortgage performance data separated between first-lien mortgages and ”Crédito Abierto” drawndowns, as well with 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 (sf) 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 are allowed for up to 5% of the initial portfolio for maturity extension to September 2059 and reduction of loan margins down to a portfolio spread equal to 3-month Euribor plus 0.80%. DBRS stressed the margin of the portfolio equal to 0.75% and extended the maturity for 5% of the mortgage loans up to September 2059 in its cash flow analysis.
• The transaction’s account bank agreement and respective replacement trigger require Caixabank acting as the treasury account bank to find (1) a replacement account bank or (2) an account bank guarantor upon loss of a BBB (low) rating. The DBRS Critical Obligations Rating of Caixabank is A (high), while the DBRS rating for Caixabank to act as account bank is ‘A’.
• 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 8.2% and LGD of 32.4%, which resulted in an EL of 2.7% 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’s “The Effect of Sovereign Risk on Securitisations in the Euro Area” commentary on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

The sources of information used for these ratings include Caixabank and GestiCaixa.

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 these ratings 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.

These ratings 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 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 22.3% and LGD of 51.1%, corresponding to a A (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 BBB (high) (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 BBB (high) (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 (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: 23 February 2016
Initial Rating Committee Chair: Diana Turner, Senior Vice President

Lead Surveillance Analyst: Vito Natale

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