DBRS Assigns Provisional Ratings to Caixabank PYMES 8, FT

DBRS Ratings Limited (DBRS) has today assigned provisional ratings to the following notes issued by Caixabank PYMES 8, FT (the Issuer):

-- EUR 1,957.5 million Series A Notes rated A (low) (sf) (the Series A Notes)
-- EUR 292.5 million Series B Notes rated CC (sf) (the Series B Notes; together, the Notes).

The transaction is a cash flow securitisation collateralised by a portfolio of term loans and current drawdowns of a revolving mortgage credit line originated by Caixabank, S.A. (Caixabank or the Originator) to small and medium-sized enterprises and self-employed individuals based in Spain. As of 24 October 2016, the transaction’s provisional portfolio included 31,414 loans and current drawdowns of a revolving mortgage credit line to 27,827 obligor groups, totalling EUR 2,427 million.

At closing, the Originator will select the final portfolio of EUR 2,250 million from the provisional pool.

The rating on the Series A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the Legal Maturity Date in January 2054. The rating on the Series B Notes addresses the ultimate payment of interest and the ultimate payment of principal on or before the Legal Maturity Date January 2054.

Interest and principal payments on the Notes will be made quarterly on the 18th of January, April, July and October with the first payment date on 18 April 2017. The Notes will pay an interest rate equal to three-month Euribor plus a 1.25% margin and 1.50% for Series A and Series B, respectively.

The provisional pool is well diversified with no significant borrower concentration and relatively low industry concentration. There is some concentration to borrowers in Catalonia (31.20% of the portfolio balance), which is expected given that Catalonia is the home region of the Originator. The top one, ten and twenty borrowers represent 0.79%, 5.07% and 7.87% of the portfolio balance, respectively. The top three industry sectors by DBRS industry definition include Building & Development, Business Equipment & Services and Farming & Agriculture, representing 18.93%, 11.99% and 9.58% of the portfolio outstanding balance, respectively.

These ratings are based on DBRS’s review of the following items:
-- The transaction structure, the form and sufficiency of available credit enhancement and the portfolio characteristics.
-- At closing, the Series A Notes benefit from a total credit enhancement of 17.10%, which DBRS considers to be sufficient to support the A (low) (sf) rating. The Series B Notes benefit from a credit enhancement of 4.10%, which DBRS considers to be sufficient to support the CC (sf) rating. Credit enhancement is provided by subordination and the Reserve Fund.
-- The Reserve Fund will be allowed to amortise after the first two years if certain conditions – relating to the performance of the portfolio and deleveraging of the transaction – are met. The Reserve Fund cannot amortise below EUR 42.0 million.
-- The transaction parties’ financial strength and capabilities to perform their respective duties and the quality of origination, underwriting and servicing practices.

DBRS determined these ratings as follows, as per the principal methodology specified below:
-- The probability of default for the portfolio was determined using the historical performance information supplied. DBRS assumed an annualised probability of default (PD) of 2.10% for this portfolio.
-- The assumed weighted-average life (WAL) of the portfolio was 4.55 years.
-- The PD and WAL were used in the DBRS Diversity Model to generate the hurdle rate for the target ratings.
-- The recovery rate was determined by considering the market value declines for Spain, the security level and type of the collateral. For the Series A Notes, DBRS applied the following recovery rates: 54.58% for secured loans and 16.25% for unsecured loans. For the Series B Notes, DBRS applied the following recovery rates: 70.67% for secured loans and 21.5% for unsecured loans.
-- The break-even rates for the interest rate stresses and default timings were determined using the DBRS cash flow model.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is Rating CLOs Backed by Loans to European SMEs. DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

All DBRS methodologies can be found on www.dbrs.com at http://www.dbrs.com/about/methodologies.

For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to DBRS’s “The Effect of Sovereign Risk on Securitisation 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 the parties involved in the ratings, including but not limited to the Originator, Caixabank, S.A., the Issuer, and GestiCaixa S.G.F.T., 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 determined key inputs used in its analysis based on historical performance data provided for the Originator and Servicer as well as analysis of the current economic environment. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

Further information on DBRS’s analysis of this transaction will be available in a rating report on http://www.dbrs.com or by contacting us at info@dbrs.com.

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 concern newly issued financial instruments.

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

To assess the impact a change of the transaction parameters would have on the ratings, DBRS considered the following stress scenarios as compared with the parameters used to determine the rating (the Base Case):
-- Probability of Default Rates Used: Base Case PD of 2.1%, a 10% increase of the base case and a 20% increase of the base case PD.
-- Recovery Rates Used: Base Case Recovery Rates of 31.08% at the A (low) (sf) stress level for the Class A Notes, a 10% and 20% decrease in the Base Case Recovery Rates.

DBRS concludes that a hypothetical increase of the Base Case PD by 20% would lead to a downgrade of the Series A Notes to BBB (high) (sf), and a hypothetical decrease of the recovery rate by 20% and would lead to a downgrade of the Series A Notes to BBB (high) (sf). A scenario combining both an increase in the Base Case PD by 10% and a decrease in the Base Case Recovery Rate by 10% would lead to a downgrade of the Series A Notes to BBB (high) (sf).

Regarding the Series B Notes, rating would not be affected by any hypothetical change in neither PD nor Recovery rate.

It should be noted that the interest rates and other parameters that would normally vary with the rating level, including the recovery rates, were allowed to change as per the DBRS methodologies and criteria.

For further information on DBRS’s historic default rates published by the European Securities and Markets Administration (ESMA) in a central repository see
http://cerep.esma.europa.eu/cerepweb/statistics/defaults.xhtml.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: María López, Vice President
Initial Rating Date: 22 November 2016
Initial Rating Committee Chair: Christian Aufsatz, Senior Vice President

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 CLOs Backed by Loans to European SMEs
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structure Finance Originators
-- Operational Risk Assessment for European Structure Finance Servicers
-- Unified Interest Rate Model for European Securitisations
-- Cash Flow Assumptions for Corporate Credit Securitizations
-- Rating Methodology for CLOs and CDOs of Large Corporate Credit
-- European RMBS Insight Methodology and European RMBS Insight: Spanish Addendum

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.