DBRS Assigns Provisional Ratings to CAIXABANK CONSUMO 3 FT

DBRS Ratings Limited (DBRS) has today assigned provisional ratings to the following notes to be issued by CAIXABANK CONSUMO 3 FT (the Issuer):
-- EUR 2,278,500,000 Series A at A (high) (sf).
-- EUR 171,500,000 Series B at CC (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 171.5 million (7.0%) subordination of the Series B notes and the EUR 98 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 2.51 billion as of 12 July 2017. The main characteristics of the portfolio include: (1) 81.7% of the portfolio are unsecured consumer loans (including standard unsecured consumer loans and pre-approved unsecured consumer loans) and 18.3% of the portfolio are mortgage consumer loans (standard loans and Crédito Abierto drawdowns); (2) the top three geographical concentrations areas are Catalonia (32.7%), Andalusia (17.3%) and Madrid (12.1%); (3) weighted-average (WA) seasoning of 2.3 years; (4) the WA margin of floating loans is 2.4% and WA coupon is 91.1%; and (5) 73.7% of the portfolio corresponds with fixed-rate loans and WA remaining term is 6.2 years. DBRS has separately analysed the consumer mortgage loans and the unsecured consumer portion.
-- The mortgage consumer loans represented 18.3% 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. The main characteristics of the mortgage consumer loans are: (1) 63.21% indexed WA current loan-to-value (INE Q2 2015); (2) WA seasoning of 8.1 years; (3) 28.5 % of the portfolio classified as self-employed; and (4) WA margin of the assets is 1.6%, which is considerably high for mortgage loans.
-- The unsecured consumer loans represented the 81.7% of the total portfolio balance and its main characteristics are: (1) 46.4% of the portfolio correspond with pre-approved loans; (2) 88.2% of the portfolio are fixed-rate loans; (3) the WA fixed-rate coupon is 11.5%, the WA margin for floating loans 4.3% and WA seasoning is 1.0 years; and (4) the WA remaining term is 4.1 years.
-- The floating-rate loans are mainly linked to 12-month and three-month Euribor. The Series A and Series B notes are floating-rate liabilities indexed to three-month Euribor (floored at 0.0%). 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 “Unified Interest Rate Model for European Securitisations” methodology.
-- 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 (both standard loans and pre-approved 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 the management company’s consent within the range of permitted variations. According to the documentation, permitted variations for up to 5% of the initial portfolio for maturity extension to September 2049 and reduction of loan margins down to a portfolio spread equal to three-month Euribor plus 1.00%. DBRS stressed the margin and interest rate of the portfolio and extended the maturity date for 5% of the mortgage loans up to September 2049 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 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 of one notch below 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 the 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 7.9% and loss given default (LGD) of 48.4%, which resulted in an estimated loss (EL) of 3.8% using the Model. For the unsecured consumer loans, the gross loss and recovery assumption inferred from the received information are 5.99% and 20.00%, 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 methodology applicable to the ratings are Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda, European RMBS 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 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 information used for this rating include Caixabank S.A, and Caixabank Titulización SGFT, S.A.

DBRS did 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 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.

This rating concerns a newly issued financial instrument.

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

To assess the impact of 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 A (sf).
-- A hypothetical increase of the PDR of 50%, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- A hypothetical increase of the LGD of 25%, ceteris paribus, would lead to a downgrade to A (sf).
-- A hypothetical increase of the LGD of 50%, ceteris paribus, would lead to a downgrade to A (sf).
-- A hypothetical increase of the PDR of 25% and LGD by 25%, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- A hypothetical increase of the PDR of 25% and LGD by 50%, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- A hypothetical increase of the PDR of 50% and LGD by 25%, would lead to a downgrade to BBB (sf).
-- A hypothetical increase of the PDR of 50% and LGD by 50%, ceteris paribus, would lead to a downgrade to BBB (sf).

Regarding the Series B Notes, the rating would not be affected by any hypothetical change in either the PD or the Recovery Rate.

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 and US regulations only.

Lead Analyst: María López, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 18 July 2017

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

-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- 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 analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375