DBRS Assigns Provisional Ratings to CaixaBank PYMES 9, FT

DBRS Ratings Limited (DBRS) assigned provisional ratings to the following notes issued by CAIXABANK PYMES 9, FT (the Issuer):

-- EUR 1,628.0 million Series A Notes rated A (low) (sf) (the Series A Notes)
-- EUR 222.0 million Series B Notes rated CCC (sf) (the Series B Notes; together, the Notes).

The transaction is a cash flow securitisation collateralised by a portfolio of secured and unsecured loans and drawdowns of secured and unsecured lines of credit originated by CaixaBank, S.A. (CaixaBank or the Originator) to small- and medium-sized enterprises and self-employed individuals based in Spain. As at 24 October 2017, the transaction’s provisional portfolio included 36,785 loans and drawdowns of secured and unsecured lines of credit to 32,816 obligor groups, totalling EUR 1,937 million.

At closing, the Originator will select the final portfolio of EUR 1,850 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 March 2053. 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 in March 2053.

Interest and principal payments on the Notes will be made quarterly on the 18th of March, June, September and December with the first payment date on 19 March 2018. The Notes will pay an interest rate equal to three-month Euribor plus 1.00% and 1.25% margins for the Series A Notes and Series B Notes, respectively.

The provisional pool presents relatively low industry concentration and is well diversified in terms of borrowers, with the exception of the top borrower, which represents 1.72% of the total portfolio balance. There is some concentration of borrowers in Catalonia, Spain (26.19% of the portfolio balance), which is to be expected given that Catalonia is the Originator’s home region. The top one, ten and twenty borrowers represent 1.72%, 5.49% and 8.19% of the portfolio balance, respectively. The top three industry sectors according to DBRS’s industry definition are Building & Development, Farming & Agriculture and Business Equipment & Services, representing 16.93%, 12.52% and 11.87% of the portfolio outstanding balance, respectively.

These ratings are based on DBRS’s review of the following items:

-- The transaction structure, form and sufficiency of available credit enhancement and portfolio characteristics.
-- At closing, the Series A Notes benefit from total credit enhancement of 16.55%, which DBRS considers to be sufficient to support the A (low) (sf) rating. The Series B Notes benefit from credit enhancement of 4.55%, which DBRS considers to be sufficient to support the CCC (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 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, per the principal methodology specified below:

-- The probability of default (PD) for the portfolio was determined using the historical performance information supplied. DBRS also compared the internal rating distribution of the portfolio with the internal rating distribution of the loan book and concluded that the portfolio was of better quality than the overall loan book. DBRS determined the portfolio PD by combining the historical performance information supplied with the loan book internal rating distribution to adjust for positive selection. DBRS assumed a combined annualised PD of 2.01% for this portfolio.
-- The assumed weighted-average life (WAL) of the portfolio is 3.79 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 the type of collateral. For the Series A Notes, DBRS applied the following recovery rates: 54.00% for secured loans and 16.25% for unsecured loans. For the Series B Notes, DBRS applied the following recovery rates: 68.94% 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 to the rating 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.
These may 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 data and information used for these ratings include the parties involved in the ratings, including but not limited to the Originator, CaixaBank, the Issuer, and CaixaBank Titulización S.G.F.T., 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 these ratings to be of satisfactory quality.

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

These ratings concern a newly issued financial instrument.

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):
-- PD Rates Used: Base Case PD of 2.01%, a 10% increase of the base case and a 20% increase of the base case PD.
-- Recovery Rates Used: Base Case Recovery Rate of 22.76% at the A (low) (sf) and 29.67% at the CCC (sf) stress levels, a 10% and 20% decrease in the Base Case Recovery Rate, respectively. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery rate levels.

For the Class A Notes, DBRS concludes that a hypothetical increase of the Base Case PD by 20% would lead to a downgrade of the Class A Notes to BBB (high) (sf) and a downgrade of the Class B Notes to CCC (low). A hypothetical decrease of the Base Case Recovery Rate by 20%, ceteris paribus, would lead to a downgrade of the Class A Notes to BBB (high) (sf) and a downgrade of the Class B Notes to CCC (low) (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 Class A Notes to BBB (high) (sf) and a downgrade of the Class B Notes to C (sf), respectively.

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 historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository see http://cerep.esma.europa.eu/cerepweb/statistics/defaults.xhtml.

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

Initial Lead Analyst: María López, Vice President
Initial Rating Date: 20 November 2017
Initial Rating Committee Chair: Jerry van Koolbergen, Managing Director

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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
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Unified Interest Rate Model for European Securitisations
-- Rating CLOs and CDOs of Large Corporate Credit
-- Cash Flow Assumptions for Corporate Credit Securitizations
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- 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.

This press release was re-published on 22 November to reflect that the assigned ratings are "Provisional Ratings – New" and not "New Ratings", as previously stated.