DBRS Assigns Provisional Ratings to CAIXABANK CONSUMO 2 FT

DBRS Ratings Limited (DBRS) has today assigned provisional ratings to the following notes to be issued by Caixabank Consumo 2 FT (the Issuer):

--EUR 1,170,000,000 Series A at A (low) (sf).
--EUR 130,000,000 Series B at BB (sf).

The Issuer is expected to be a static securitisation of unsecured consumer loans and mortgage consumer loans originated by Caixabank S.A. (Caixabank). The mortgage consumer loans include standard loans and current drawdowns of a revolving mortgage credit line called “Crédito Abierto.” Mortgage consumer loans are secured by first and second lien mortgage on properties located in Spain. 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 unsecured consumer loans and the mortgage consumer loans from the Seller, Caixabank. Caixabank will also be the servicer of the portfolio. In addition, Caixabank will provide separate subordinated loans to fund 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 on DBRS’s review 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 130 million (10%) subordination of the Series B notes and the EUR 52 million (4.0%) Reserve Fund, which is available to cover senior fees as well as interest and principal of the Series A notes and Series B notes once the Series A notes are paid in full. The Reserve Fund target will amortise subject to the target levels and performance triggers. 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 Reserve Fund replenishment and Series B notes interest payments in the priority of payments.
-- DBRS was provided with the provisional portfolio equal to EUR 1.39 billion (as of 23 May 2016). The main characteristics of the portfolio include: (1) 75% of the portfolio are unsecured consumer loans and 25% of the portfolio are mortgage consumer loans (standard loans and “Crédito Abierto” drawdowns); (2) the top three geographical concentrations areas are Catalonia (34.1%), Andalusia (16.9%) and Madrid (11.5%); (3) weighted-average (WA) seasoning of 2.5 years; (4) the WA margin of floating loans is 2.20% and WA coupon is 7.30%; (5) 65.9% of the portfolio corresponds to fixed-rate loans; and (6) WA remaining term is 7.0 years. DBRS has separately analysed the consumer mortgage loans and the unsecured consumer portion.
-- The mortgage consumer loans represented 25.0% of the total portfolio balance and it was analysed using the European RMBS Insight Model (the Model) to estimate the defaults and losses of the portfolio. DBRS assigned a Spanish Underwriting Score of 3 to the standard loan portion and a Spanish Underwriting Score of 1 to the “Crédito Abierto” drawdowns portion. The main characteristics of the mortgage consumer loans are: (1) 71.1% indexed WA current loan-to-value (INE Q2 2015); (2) WA seasoning of 6.3 years; (3) 21.0 % of the portfolio classified as self-employed; (4) WA margin of the assets is 1.50% which is considerably high for mortgage loans; and (5) 23.9% of the mortgage portfolio had a remaining term greater than 20 years.
-- The unsecured consumer loans represented the 75% of the total portfolio balance, and its main characteristics are: (1) 86.8% of the portfolio are fixed-rate loans; (2) the WA fixed-rate coupon is 9.6% and the WA margin for floating loans is 3.8%; (3) WA seasoning is 1.3 years; and (4) the WA remaining term is 4.0 years.
-- The floating-rate loans are mainly linked to 12-month Euribor. The Series A and Series B notes are floating-rate liabilities indexed to three-month Euribor. The basis risk is mitigated by the amounts credited to the Reserve Fund. Additionally, the Series A notes benefit from the senior position in the priority of payments to the Series B notes, and DBRS stressed the interest rates as described in the DBRS methodology Unified Interest Rate Model for European Securitisations.
-- The credit quality of the portfolio backing the notes and the ability of the servicer to perform its servicing responsibilities. DBRS was provided with Caixabank’s historical performance data divided by unsecured consumer loans and consumer mortgage loans (both standard loans and “Crédito Abierto” drawdowns).
-- In accordance with the transaction documentation, the servicer is able to grant loan modifications without consent of the management company within the range of permitted variations. According to the documentation, permitted variations are for up to 5% of the initial portfolio for maturity extension to September 2056 and reduction of loan margins down to a portfolio spread equal to 3-month Euribor plus 1.25%. DBRS stressed the margin of the portfolio and extended the maturity date for 5% of the mortgage loans up to September 2056 in its cash flow analysis.
-- The transaction’s account bank agreement and respective replacement trigger require Caixabank acting as treasury account to find (1) a replacement account bank or (2) an account bank guarantor upon the loss of a BBB (low) account bank applicable rating. The DBRS Critical Obligations Rating (COR) of Caixabank is A (high), while the DBRS rating for Caixabank’s Senior Debt is A (low). The account bank applicable rating is the higher between one notch below the Caixabank COR or Caixabank’s Senior Debt rating.
-- The legal structure and presence of legal opinions addressing assignment of the assets to the Issuer and consistency with DBRS’s Legal Criteria for European Structured Finance Transactions methodology.

As a result of the analytical considerations for mortgage consumer assets, DBRS derived a base-case probability of default rate (PDR) of 8.6% and loss given default (LGD) of 21.9%, which resulted in an estimated loss (EL) of 2.1% using the Model. For the unsecured consumer loans, the gross loss and recovery assumption inferred from the received information are 12.5% and 21.6%, respectively. DBRS cash flow 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 methodologies applicable are European RMBS Insight Methodology and European EMBS Insight: Spanish Addendum and Rating European Consumer and Commercial Asset-Backed Securitisations.

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

Other methodologies referenced in this transaction are listed at the end of the 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 Caixabank and GestiCaixa SGFT, S.A.

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):
-- Probability of Default (PD): Base Case a 25% and 50% increase on base case PD.
-- Loss Given Default (LGD): Base Case a 25% and 50% increase on base case LGD.

In respect of the Series A notes:
-- A hypothetical increase of the PDR of 25%, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- A hypothetical increase of the PDR 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 (high) (sf).
-- A hypothetical increase of the PDR of 25% and LGD by 25%, ceteris paribus, would lead to a downgrade to BBB (low) (sf).
-- A hypothetical increase of the PDR of 25% and LGD by 50%, ceteris paribus, would lead to a downgrade to BBB (low) (sf).
-- A hypothetical increase of the PDR of 50% and LGD by 25%, would lead to a downgrade to BB (sf).
-- A hypothetical increase of the PDR of 50% and LGD by 50%, ceteris paribus, would lead to a downgrade to BB (sf).

In respect of the Series B notes:
-- A hypothetical increase of the PDR of 25%, ceteris paribus, would lead to a downgrade to B (sf).
-- A hypothetical increase of the PDR of 50%, ceteris paribus, would lead to a downgrade to CCC (sf).
-- A hypothetical increase of the LGD of 25%, ceteris paribus, would lead to a downgrade to B (sf).
-- A hypothetical increase of the LGD of 50%, ceteris paribus, would lead to a downgrade to B (low) (sf).
-- A hypothetical increase of the PDR of 25% and LGD by 25%, ceteris paribus, would lead to a downgrade to CCC (sf).
-- A hypothetical increase of the PDR of 25% and LGD by 50%, ceteris paribus, would lead to a downgrade to CCC (sf).
-- A hypothetical increase of the PDR of 50% and LGD by 25%, would lead to a downgrade to C (sf).
-- A hypothetical increase of the PDR of 50% and LGD by 50%, ceteris paribus, would lead to a downgrade to C (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: 20 June 2016
Initial Rating Committee Chair: Erin Stafford, Managing Director

Lead Surveillance Analyst: Vito Natale, Senior Vice President

DBRS Ratings Limited
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- European RMBS Insight Methodology and European RMBS Insight: Spanish Addendum
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Legal 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.