DBRS Finalises Provisional Rating on BBVA RMBS 16 FT

DBRS Ratings Limited (DBRS) has today finalised its provisional rating of A (high) (sf) to the EUR 1,344,000,000 Series A (Series A) notes issued by BBVA RMBS 16 (the Issuer).

The Issuer is a securitsation of residential mortgage loans secured by first-lien mortgages on properties in Spain originated by Banco Bilbao Vicaya Argentaria, S.A (BBVA). At the closing of the transaction, the Issuer will use the proceeds of the Series A notes and the Loan B to fund the purchase of the mortgage portfolio from the Seller, BBVA. BBVA is also the servicer of the portfolio. In addition, BBVA provides separate subordinated loans to fund each the initial expenses and the Reserve Fund. The securitisation takes 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 256.0 million (16.0%) subordination of the Loan B and the EUR 64.0 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 notes and Loan B and 4% of the initial balance of the Series A notes and Loan B, subject to a floor of EUR 32.0 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 Loan B will not be paid until the Series A notes have been redeemed in full. Additionally, the Series A principal will be senior to the Loan B interest payments in the priority of payments.
-- DBRS was provided with the provisional portfolio equal to EUR 1,674 million as of 14 April 2016. At closing, the portfolio balance is equal to the balance of the Series A notes and the Loan B (EUR 1,600 million). The main characteristics of the total provisional portfolio included: (1) 65.9% weighted-average current loan-to-value (WACLTV) and 82.0% indexed WACLTV (INE Q4 2015); (2) the top three geographical concentrations of Madrid (22.8%), Andalusia (17.5%) and Catalonia (16.0%); (3) 3.4% of the borrowers are non-nationals; (4) weighted-average loan seasoning of 5.3 years; and (5) the weighted-average remaining term of the portfolio is 27.4 years with 26.6% of the loans having a remaining term greater than 30 years.
-- Most of the securitised mortgages products benefit from one or more of the following flexible loan features: (1) loan margin reduction, (2) eligibility to apply for grace periods, (3) interest rate type change, (4) loan maturity extension or (5) amortisation profile change from French amortisation to French amortisation with a balloon payment. In addition to these contractual loan features, the transaction documentation allows for permitted variations, which allow the servicer to renegotiate the margin or maturity of the outstanding loans at request of the borrower within certain limits, e.g., the weighted-average margin of the portfolio is not allowed to fall below 0.65% and only up to 10% of the original outstanding loan balance can benefit from maturity extensions.
-- The loans are floating-rate mortgages primarily linked to 12-month Euribor (98.2 %) and IRPH (1.8%) while the notes are floating-rate liabilities indexed to three-month Euribor. The interest rate risk and basis risk are 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 Loan B. 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 Series A notes and the ability of the servicer to perform its servicing responsibilities. DBRS was provided with BBVA’s historical mortgage performance data, and 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 (high) (sf) stress scenarios are detailed below.
-- The transaction’s account bank agreement and respective replacement trigger require BBVA acting as the treasury account bank to find (1) a replacement account bank or (2) an account bank guarantor upon loss of a BBB Account Bank applicable rating. The DBRS Critical Obligations Rating (COR) of BBVA is A (high), while the DBRS rating for BBVA Senior Debt is “A.” The Account Bank applicable rating is the higher between the one notch below BBVA COR or BBVA Senior Debt rating.
-- 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 4.5% and LGD of 30.9%, which resulted in an EL of 1.4% 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 BBVA and Europea de Titulización. DBRS received historical net loss data relating to BBVA origination by quarterly vintage going back to Q1 2008. Data from previous securitisations was also provided in yearly basis.

DBRS does not rely upon third-party due diligence in order to conduct its analysis. DBRS was 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 17.7% and LGD of 46.0%, 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 not have any impact on the rating as A (high) (sf).
-- A hypothetical increase of the PD of 50%, ceteris paribus, would not have any impact on the rating as A (high) (sf).
-- A hypothetical increase of the LGD of 25%, ceteris paribus, would not have any impact on the rating as A (high) (sf).
-- A hypothetical increase of the LGD of 50%, ceteris paribus, would not have any impact on the rating as A (high) (sf).
-- A hypothetical increase of the PD of 25% and LGD by 25%, ceteris paribus, would not have any impact on the rating as A (high) (sf). A hypothetical increase of the PD of 50% and LGD by 25%, ceteris paribus, not have any impact on the rating as A (high) (sf).
-- A hypothetical increase of the PD of 25% and LGD by 50%, ceteris paribus, would not have any impact on the rating as A (high) (sf).
-- A hypothetical increase of the PD of 50% and LGD by 50%, ceteris paribus, would not have any impact on the rating as A (high) (sf).

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: María López, Vice President
Initial Rating Date: 5 May 2016
Initial Rating Committee Chair: Diana Turner, Senior Vice President

Lead Surveillance Analyst: Vito Natale

DBRS Ratings Limited
20 Fenchurch Street, 31st Floor, London EC3M 3BY
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
-- Unified Interest Rate Model for European Securitisations

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