DBRS Confirms Rating on Caja Rural de Granada Covered Bond Programme

DBRS Ratings Limited (DBRS) has today confirmed its A (high) rating on the Cédulas Hipotecarias (CH, Spanish mortgage covered bonds) issued by Caja Rural de Granada Sociedad Cooperativa de Crédito (CRG, the Issuer). The confirmation follows the completion of a full review of the rating.

The rating is based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of BBB. CRG is the Issuer and Reference Entity for the programme.
-- A Legal and Structuring Framework (LSF) Assessment of Average associated with CRG CH.
-- A Cover Pool Credit Assessment (CPCA) of BBB (low), being the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L).
-- An LSF-Implied Likelihood (LSF-L) of A (low).
-- A two-notch uplift for high recovery prospects.
-- A level of overcollateralisation (OC) of 124% to which DBRS gives credit, being the minimum observed OC level during the past 12 months adjusted by a scaling factor of 0.90.

The transaction was modelled using the DBRS European Covered Bond Cash Flow Model. The main assumptions focused on the timing of defaults and recoveries of the assets, interest rate stresses and market value spreads to calculate liquidation values on the cover pool.

Everything else being equal, a downgrade of the CBAP by one notch would lead to a downgrade of the LSF-L by one notch, resulting in a downgrade of the covered bonds rating by one notch. In addition, everything else being equal, the CH ratings would be downgraded if any of the following occurred: (1) the CPCA were downgraded below BBB (low); (2) the sovereign rating of the Kingdom of Spain were downgraded below A (low); (3) the LSF assessment associated with the programme were downgraded; (4) the quality and consistency of the cover pool (CP) were no longer sufficient to support a two-notch uplift for high recovery prospects; or (5) volatility in the financial markets were to cause the currently estimated market value spreads to increase.

The total outstanding amount of CH is EUR 600 million, while the aggregate balance of the mortgages in the cover pool is EUR 1.54 billion (as of June 2016), resulting in a total OC of 156.4%. The eligible cover pool stands at EUR 1.09 billion, resulting in an eligible OC of 81.6%.

Spanish Covered Bonds are backed by the entire mortgage book of the bank, except those mortgage loans pledged to securitisations and bonos hipotecarios. Having non-residential assets is a common feature among CH; the CRG cover pool is composed of mortgage loans with a 53% residential versus 47% non-residential split, with a low weighted-average loan-to-value ratio (WALTV of 51.3%). This is an 80-month seasoned cover pool that is geographically concentrated in the Autonomous Community of Andalusia (95%).

The vast majority of the loans in the cover pool (approximately 99%) are floating rate, while the liabilities pay fixed coupon. As customary in Spanish CH, swaps are not for the benefit of the CH holders. This risk has been accounted for in DBRS’s cash flow modelling. The weighted-average life of the assets is roughly ten years, while that of the covered bonds is roughly two years. This generates an asset-liability mismatch that is partly mitigated by the available OC. All assets and liabilities are denominated in euros.

For further information on Caja Rural de Granada CH, please refer to the rating report available on www.dbrs.com.

DBRS has applied the new Structured Credit methodology, published on 19 July 2016 to perform the analysis of the non-residential portion of the pool. For further information, please see “Rating CLOs Backed by Loans to European SMEs.”

DBRS has assessed the LSF related to CRG CH as Average according to its rating methodology. For more information, please refer to the DBRS Commentary “Spanish Mortgage Covered Bonds: Legal and Structuring Framework Review” and “DBRS Assigns Legal and Structuring Framework Assessment to Spanish Mortgage Covered Bonds Programmes,” available at www.dbrs.com.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is “Rating European Covered Bonds” (December 2016). This can be found at http://www.dbrs.com/about/methodologies. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

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 legal documents was not conducted as the documents have remained unchanged since the most recent rating action.

For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to DBRS’s “The Effect of Sovereign Risk on Securitisations in the Euro Area” commentary at http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include historical dynamic performance data and cover pool loan by loan data provided by CRG that allowed DBRS to further assess the portfolio.

DBRS considers the information available to it for the purposes of providing these ratings was of satisfactory quality.

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 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 programme took place on 21 December 2015, when DBRS confirmed the rating on CRG CH following completion of the annual deal review.

The lead responsibilities for this transaction have been transferred to Alessandra Maggiora.

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

For further information on DBRS historical default rates published by the European Securities and Markets Authority (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.

Lead Analyst: Alessandra Maggiora, Senior Financial Analyst
Rating Committee Chair: Quincy Tang, Managing Director
Initial Rating Date: 23 December 2013

DBRS Ratings Limited
20 Fenchurch Street
31st Floor
London
EC3M 3BY
United Kingdom

Registered in England and Wales: No. 7139960

The rating methodologies and criteria used in the analysis of this transaction can be found at http://www.dbrs.com/about/methodologies.
-- Rating European Covered Bonds
-- Rating European Covered Bonds Addendum: Market Value Spreads Range (Midpoints)
-- Critical Obligations Rating Criteria
-- Global Methodology for Rating Banks and Banking Organisations
-- DBRS Criteria: Support Assessments for Banks and Banking Organisations
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Unified Interest Rate Model for European Securitisations
-- European RMBS Insight Methodology
-- European RMBS Insight: Spanish Addendum
-- Operational Risk Assessment for European Structured Finance Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating CLOs and CDOs of Large Corporate Credit
-- Rating CLOs Backed by Loans to European SMEs
-- The Effect of Sovereign Risk on Securitisations in the Euro Area
-- Sovereign Ratings Provide a Benchmark for other DBRS Credit Ratings

A description of how DBRS methodologies are collectively applied can be found at http://www.dbrs.com/research/278375