DBRS Upgrades Ratings on Foncaixa Leasings 2 F.T.A.

DBRS Ratings Limited (DBRS) has today concluded its rating review and taken the following rating actions on the bonds issued by Foncaixa Leasings 2 F.T.A. (the Issuer):

-- Series A upgraded to A (high) (sf) from A (sf)
-- Series B upgraded to BBB (low) (sf) from BB (high) (sf)

DBRS has also removed the Under Review with Positive Implications (UR-Pos.) designation for all ratings.

The rating actions reflect an annual review of the transaction and concludes the UR-Pos. status of the ratings. The Series A and Series B bonds were placed UR-Pos. following a material update to the methodology which DBRS applies to monitor the counterparty risks of the transaction (see “Legal Criteria for European Structured Finance Transactions,” published on 19 February 2016). This methodology incorporates DBRS’s new Critical Obligations Ratings (COR), which were introduced in the “Critical Obligations Rating Criteria” methodology published on 2 February 2016, and also provides updated and more granular rating levels for account bank institution replacements and eligible investments.

CaixaBank, S.A. is the account bank for the transaction. The account bank reference rating of ‘A’ – being one notch below the DBRS public Long-Term COR rating of CaixaBank, S.A. of A (high) – complies with the Minimum Institution Rating, given the rating assigned to Series A, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

The rating actions on the Series A and Series B bonds are also based on the following analytical considerations as described more fully below:

-- Portfolio performance, in terms of delinquencies and defaults, as of March 2016.
-- Updated default, recovery and loss assumptions on the remaining receivables.
-- Current available credit enhancement to the Series A and Series B bonds to cover the expected losses at the A (high) (sf) and BBB (low) (sf) rating levels, respectively.

The Issuer is a securitisation of Spanish finance leases relating to real estate, vehicles and equipment, originated and serviced by CaixaBank, S.A.
As of March 2016, two- to three-month arrears were at 0.05% and the 90+ delinquency ratio was at 3.33%. Gross cumulative defaults are currently at 3.23%.

Credit enhancement to the Series A notes is provided by subordination of the Series B notes as well as the Cash Reserve and is currently at 72.51%, up from 31.00% at the DBRS Initial Rating. Credit enhancement to the Series B notes is provided solely by the Cash Reserve and is currently at 37.16%, up from 16.00% at the DBRS Initial Rating.

The transaction benefits from a Cash Reserve, currently at the target level of EUR 181.27 million. The Cash Reserve is permitted to amortise, given that certain triggers have not been breached.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is the Master European Structured Finance Surveillance Methodology. DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology. A review of the transaction’s legal documents was not conducted as the documents have remained unchanged since the most recent rating action.

Other methodologies and criteria 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” found at http://www.dbrs.com/industries/bucket/id/10036/name/commentaries.

The sources of information used for this rating include monthly investor reports provided by GestiCaixa (the Management Company) and data from the European DataWarehouse GmbH.

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.

The last rating action on this transaction took place on 19 February 2016, when the ratings on the Series A and Series B notes were placed UR-Pos. Prior to that, on 15 June 2015, DBRS confirmed the rating of A (sf) on the Series A notes and confirmed the rating of BB (high) (sf) on the Series B notes. The lead responsibilities for this transaction have been transferred to Andrew Lynch.

Information regarding DBRS ratings, including definitions, policies and methodologies is available at www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with the parameters used to determine the rating (the base case):
-- DBRS expected a lifetime base-case probability of default (PD) and loss given default (LGD) for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base-case assumptions and therefore have a negative effect on credit ratings.
-- The base-case PD and LGD of the current pool of loans for the Issuer are 17.12% and 97.16%, respectively.
-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base-case assumption. For example, if the LGD increases by 50%, the rating of the Series A notes would be expected to fall to A (low) (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Series A notes would be expected to fall to A (low) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Series A notes would be expected to fall to BBB (sf).

Series A notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf).
-- 50% increase in LGD, expected rating of A (low) (sf).
-- 25% increase in PD, expected rating of A (high) (sf).
-- 50% increase in PD, expected rating of A (low) (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of A (low) (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (sf).

Series B notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (low) (sf).
-- 50% increase in LGD, expected rating of BBB (low) (sf).
-- 25% increase in PD, expected rating of BBB (low) (sf).
-- 50% increase in PD, expected rating of BBB (low) (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (sf).

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: Alessio Pignataro
Initial Rating Date: 22 March 2013
Initial Rating Committee Chair: Chuck Weilamann

Lead Surveillance Analyst: Andrew Lynch, Senior Financial Analyst
Rating Committee Chair: Diana Turner, Senior Vice President

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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.

-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Unified Interest Rate Model for European Securitisations

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.