DBRS Assigns AA (high) Rating to CaixaBank, S.A. Covered Bonds New Issuance

DBRS Ratings Limited (DBRS) has today assigned a rating of AA (high) to Series 25, Cédulas Hipotecarias – ES0440609321 (Series 25) issued by CaixaBank, S.A. (CaixaBank or the Issuer). Series 25 is a EUR 4.0 billion floating-rate security indexed to Euribor 6 months + 0.55%, issued on 22 December 2016 and maturing in December 2022. At the same time, DBRS has confirmed the AA (high) ratings of the other outstanding Cédulas Hipotecarias (CH, the Spanish mortgage covered bonds) rated by DBRS.

As of today, there are EUR 48.6 billion CH outstanding under the programme, of which EUR 43.6 billion is rated by DBRS.

The ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of A (high), which is the Long-Term Critical Obligations Rating of CaixaBank. CaixaBank is the Issuer and Reference Entity for the programme.
-- A Legal and Structuring Framework (LSF) Assessment of Average associated with CaixaBank CH.
-- A Cover Pool Credit Assessment (CPCA) of BBB, which is the lowest CPCA in line with the assigned LSF-Implied Likelihood (LSF-L).
-- A LSF-L of AA (low). In DBRS’s view, CaixaBank CH’s LSF-L is limited to one notch above the CBAP.
-- A two-notch uplift for high recovery prospects.
-- A level of overcollateralisation (OC) of 98% to which DBRS gives credit, which is the minimum observed OC level during the past 12 months adjusted by a scaling factor of 0.85.

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 (CP).

Everything else being equal, a one-notch downgrade of the CBAP would lead to a one-notch downgrade of the LSF-L, resulting in a one-notch downgrade of the covered bonds rating. In addition, everything else being equal, the CH ratings would be downgraded if any of the following occurred: (1) the CPCA was downgraded below BBB; (2) the sovereign rating of the Kingdom of Spain was downgraded below A (low); (3) the LSF assessment associated with the programme was downgraded; (4) the quality and consistency of the CP were no longer sufficient to support a two-notch uplift for high recovery prospects; (5) the relative amortisation profile of the CH and CP moved adversely; or (6) volatility in the financial markets caused the currently estimated market value spreads to increase.

As of 30 September 2016, the aggregate balance of the mortgages in the CP was EUR 104.7 billion, resulting in a DBRS-calculated total OC of 116%. The eligible CP stands at EUR 63.6 billion, resulting in a DBRS-calculated eligible OC of 31%.

As of 30 September 2016, the CP comprised 1,304,950 mortgages, with a weighted-average current unindexed loan-to-value ratio of 51% and is split between 75.3% residential, 17.2% commercial, 6.4% developers and 1.1% land. It is geographically distributed mainly in Catalonia (27%), Andalucia (18%) and the Madrid region (15%), while 0.9% of the CP assets are located outside Spain. The pool is 98 months seasoned.

As is customary in the Spanish market, the CH holders do not receive the benefit of any swap contract to hedge the mismatches between the interest yield by the CP (96.1% floating rate linked to different indexes and resets) and the interest due on the CH (roughly equally split between fixed and floating rate linked to different indexes and resets). The only foreign currency CH amounts to a nominal of USD 255 million, equivalent to roughly EUR 237.9 million at the spot rate as of 5 January 2017 (or 0.53% of the CH outstanding). Of the loans, 1.1% originated in a currency other than euros. DBRS considers this exposure to be negligible and to be mitigated by the available OC.

The DBRS-calculated weighted-average life of the assets is 10.25 years while that of the covered bonds is roughly six years. This generates an asset-liability mismatch that is partly mitigated by the available OC.

For further information on CaixaBank CH, please refer to the rating report that is available on www.dbrs.com.

DBRS has assessed the LSF related to CaixaBank 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 to the rating is: “Rating European Covered Bonds.”

In DBRS’s opinion, the changes under consideration do not require the application of the entire principal methodology. Therefore, DBRS focused on a cash flow analysis.

A review of the transaction legal documents was limited to the documentation pertaining to the issuance of ES0440609321. All the other legal documents have remained unchanged since the most recent rating action.

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

These 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 data and information used for this rating include historical default performance data and cover pool stratification tables provided by CaixaBank that allowed DBRS to further assess the portfolio.

DBRS did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial rating DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS considers the data and information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

The last rating action on this transaction took place on 16 January 2017, when DBRS confimed CaixaBank, S.A. Covered Bonds at AA (high) following the completion of the annual review of the Programme.

Information regarding DBRS ratings, including definitions, policies and methodologies, is 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: Vito Natale, CFA, FRM – Senior Vice President
Rating Committee Chair: Christian Aufsatz – Managing Director
Initial Rating Date: 20 January 2016

DBRS Ratings Limited
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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

-- Rating European Covered Bonds
-- Rating European Covered Bonds Addendum: Market Value Spreads Range (Midpoints)
-- Global Methodology for Rating Banks and Banking Organisations
-- Critical Obligations Rating Criteria
-- DBRS Criteria: Support Assessments for Banks and Banking Organisations
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- 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
-- Unified Interest Rate Model Methodology for European Securitisations
-- 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 analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375