DBRS Finalises Provisional Rating Assigned to BBVA RMBS 18 FT

DBRS Ratings Limited (DBRS) finalised its provisional rating of AA (sf) to the EUR 1,458 million Series A notes issued by BBVA RMBS 18 FT (the Issuer).

The rating of the Series A notes addresses timely payment of interest and ultimate payment of principal on or before the legal final maturity date.

The transaction is a securitsation of residential mortgage loans secured by first-lien mortgages originated by the Banco Bilbao Vizcaya Argentaria S.A. (BBVA or the Seller) in Spain. The Issuer used the proceeds of the Series A notes and the Loan B to fund the purchase of the mortgage portfolio from the Seller. In addition, BBVA provided separate additional subordinated loans to fund both the initial expenses and the Reserve Fund. The securitisation takes place in the form of a fund, in accordance with Spanish Securitisation Law.

The securitised mortgage loans were originated by BBVA, Catalunya Banc S.A. (CX) and UNIMM Banc (UNIMM). The mortgage loans are secured over residential properties located in Spain. Between 2011 and 2012, CX received capital investment from the Fund for Orderly Bank Restructuring (FROB), effectively nationalising the bank. BBVA acquired CX on 24 April 2015. Subsequently, CX absorbed and merged with BBVA. The transaction is managed by Europea de Titulización, S.A., Sociedad Gestora de Fondos de Titulización.

The originator and servicer of the transaction is BBVA. The Account Bank and the Principal Paying Agent is also BBVA.

The rating is based upon a review by DBRS of the following analytical considerations:

• The transaction’s capital structure, form and sufficiency of available credit enhancement. The Series A notes benefit from the EUR 342 million (19.0%) subordination of Loan B and the EUR 88.2 million (4.9%) Reserve Fund, which is available to cover senior expenses as well as interest and principal of the Series A notes until paid in full. The Reserve Fund will respectively amortise with a target equal to the lower of 9.8% of the outstanding balance and 4.9% of the initial balance of the Series A notes and Loan B, subject to a floor of EUR 44.1 million. The Reserve Fund will not amortise if certain performance triggers are breached. The Series A notes will benefit from full sequential amortisation, where principal on the Loan B will not be paid until the Series A notes have been redeemed in full. Additionally, the Series A principal will be senior to the Loan B interest payments in the priority of payments.

• DBRS was provided with the final portfolio equal to EUR 1,800 million as of 20 November 2017. The main characteristics of the total portfolio includes: (1) 70.4% weighted-average current loan-to-value (WACLTV) and 94.3% indexed WA CLTV (INE Q4 2015); (2) the top three geographical concentrations of Catalonia (49.4%), Madrid (13.6%), and Andalusia (10.2%); (3) 4.3% of the borrowers are non-nationals; (4) weighted average loan seasoning of 7.0 years; and (5) the weighted average remaining term of the portfolio is 27.5 years with 29.1% of the portfolio having a remaining term greater than 30 years.

• 90.3% of the securitised mortgages products benefit from one or more of the following flexible loan features: (1) loan margin reduction; (2) eligibility to apply for grace periods; (3) interest rate type change; (4) loan maturity extension; or (5) amortisation profile change from French amortisation to French amortisation with a balloon payment. In addition to these contractual loan features, the transaction documentation allow the servicer to grant loan modifications without consent of the management company within the range of permitted variations. DBRS stressed the margin of the portfolio to the minimum margin allowed per loan agreement and extended the maturity to the longest possible date in its cash flow analysis for 2% of the portfolio.

• The loans are floating rate mortgages primarily linked to 12-month Euribor (83.9 %), IRPH (2.8%) and fixed to floating rate loans (13.3%). The notes are floating-rate liabilities indexed to three-month Euribor. The interest rate risk and basis risk are unhedged. Amounts standing in the Reserve Fund are available to cover the interest rate and basis risk for the rated notes. Additionally, the Series A notes benefit from the senior position in the priority of payments to the Loan B. DBRS stressed the interest rates as described in the DBRS methodology “Unified Interest Rate Model for European Securitisations.”

• The credit quality of the mortgages backing the notes and the ability of the servicer to perform its servicing responsibilities. DBRS was provided with BBVA’s historical mortgage performance data, as well as loan-level data for the mortgage portfolio. Details of the probability of default (PD), loss given default (LGD), and expected losses (EL) resulting from DBRS’s credit analysis of the mortgage portfolio at AA (sf) stress scenarios are detailed below.

• The transaction’s account bank agreement and respective replacement trigger require BBVA acting as the treasury account bank to find (1) a replacement account bank or (2) an account bank guarantor upon loss of a ‘BBB (high)’ Account Bank applicable rating. The DBRS Critical Obligation Rating (COR) of BBVA is A (high), while the DBRS rating for BBVA Long Term Senior Debt and Issuer ratings are at ‘A’ (as of the date of this press release). The Account Bank applicable rating is the higher of one notch below the BBVA COR and BBVA Long Term Senior Debt rating.

• The legal structure and presence of legal opinions addressing the assignment of the assets to the Issuer and its consistency with the DBRS “Legal Criteria for European Structured Finance Transactions” methodology.

As a result of the analytical considerations, DBRS derived a Base Case PD of 7.78% and LGD of 34.20%, which resulted in an EL of 2.66%. 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. The cash flows were analysed using Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodologies applicable to this rating are:
“European RMBS Insight Methodology” and “European RMBS Insight: Spanish Addendum.”

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 Banco Bilbao Vizcaya Argentaria, S.A and Europea de Titulización, S.A., SGFT

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 considers the 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. This is the first DBRS rating on this financial instrument.

This is the first rating action since the Initial Rating Date.

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

To assess the impact of the 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”):

In respect of the Series A notes, the PDR of 29.58% and LGD of 50.87%, corresponding to a AA (sf) stress scenario, were stressed assuming 25% and 50% increase on the PDR and LGD:
-- A hypothetical increase of the PDR of 25%, ceteris paribus, would not have an impact on the rating of AA (sf).
-- A hypothetical increase of the PDR of 50%, ceteris paribus, would lead to a downgrade to AA (low) (sf).
-- A hypothetical increase of the LGD of 25%, ceteris paribus, would not have an impact on the rating of AA (sf).
-- A hypothetical increase of the LGD of 50%, ceteris paribus, would not have an impact on the rating of AA (sf).
-- A hypothetical increase of the PDR of 25% and LGD by 25%, ceteris paribus, would lead to a downgrade to AA (low).
-- A hypothetical increase of the PDR of 25% and LGD by 50%, ceteris paribus, would lead to a downgrade to A (high) (sf).
-- A hypothetical increase of the PDR of 50% and LGD by 25%, ceteris paribus, would lead to a downgrade to A (sf).
-- A hypothetical increase of the PDR of 50% and LGD by 50%, ceteris paribus, would lead to a downgrade to BBB (high) (sf).

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: Asim Zaman, Vice President
Rating Committee Chair: Erin Stafford, Managing Director
Rating Date: 22 November 2017

Initial Rating Date: 14 November 2017

DBRS Ratings Limited
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London EC3M 3BY
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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

-- European RMBS Insight Methodology
-- European RMBS Insight: Spanish Addendum
-- Legal Criteria for European Structured Finance Transactions
-- Unified Interest Rate Model for European Securitisations
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators

A description of how DBRS analysis structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375