DBRS Confirms Ratings on IM Grupo Banco Popular Empresas VII, FT

DBRS Ratings Limited (DBRS) confirmed the ratings on the following Notes issued by IM Grupo Banco Popular Empresas VII, FT (the Issuer):

-- Series A Notes confirmed at A (high) (sf)
-- Series B Notes confirmed at CC (sf)

The rating on the Series A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the Final Maturity Date (March 2056), while the rating on the Series B Notes addresses the ultimate payment of interest and ultimate payment of principal on or before the Final Maturity Date.

The rating actions follow an annual review of the transaction and are based on the following analytical considerations:

-- Portfolio performance, in terms of level of delinquencies and defaults, as of the September 2017 payment date;
-- No revolving termination events have occurred;
-- Updated Portfolio Default rate (PD), recovery rate and expected loss assumptions; and
-- The current available credit enhancement (CE) to the Series A and Series B Notes to cover expected losses assumed in line with the A (high) (sf) and CC (sf) rating levels, respectively.

The Issuer is a revolving cash flow securitisation collateralised by a portfolio of term loans originated by Banco Popular Español, S.A. (Popular) and Banco Pastor, S.A.U. to small and medium-sized enterprises (SMEs) and self-employed individuals based in Spain. Banco Santander SA (Santander), after having acquired Banco Popular, acts as servicer of the portfolio. The transaction envisages a two-year revolving period, expected to end on the December 2018 payment date. During the revolving period, Santander may sell additional portfolios to the Issuer, subject to certain conditions and limitations.

PORTFOLIO PERFORMANCE
As of the 22 September 2017 payment date, the overall portfolio consisted of 32,535 loans with an aggregate principal balance of EUR 2.2 billion.

The portfolio is performing within DBRS’s expectations. The percentage of outstanding balance of loans in arrears for more than 90 days was at 1.1% in terms of the outstanding portfolio. The cumulative default ratio was at 0.01% in terms of the initial portfolio amount.

PORTFOLIO ASSUMPTIONS
DBRS has updated its default and recovery assumptions on the outstanding portfolio to 31.7% and 16.3%, respectively, at the A (high) (sf) rating level, 7.3% and 21.5%, respectively, at the CC (sf) rating level.

CREDIT ENHANCEMENT
As of September 2017, the CE to the Series A Notes and Series B Notes was 28% and 4%, respectively, stable since closing because of the revolving period of the transaction. The CE of the Series A Notes considers the subordination of Series B Notes and the reserve fund (RF). The RF is available to cover missed interest of the Series A Notes and, once the Series A Notes are fully paid, interest of the Series B Notes throughout the life of the transaction.

Santander acts as Account Bank and Paying Agent of the transaction. On the basis of the DBRS public Long-Term Critical Obligations Rating of Santander at A (high) and the mitigants outlined in the transaction documents, DBRS considers the risk arising from the exposure to the Account Bank to be consistent with the rating assigned to the Series A Notes.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings 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 surveillance section of the principal methodology.

A review of the transaction legal documents was not conducted as the 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 “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf.

The sources of data and information used for these ratings include reports provided by InterMoney Titulización S.G.F.T., S.A and loan-level data from the European DataWarehouse GmbH.

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

At the time of the initial rating, 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.

The last rating action on this transaction took place on 2 December 2016 when DBRS finalised its ratings of A (high) (sf) and CC (sf) on the Series A Notes and Series B Notes, respectively.

The lead analyst responsibilities for this transaction have been transferred to Francesco Amato.

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) Rates Used: base case PD of 2.6%, a 10% increase of the base case and a 20% increase of the base case PD.
-- Recovery Rates Used: base case recovery rates of 16.3% at the A (high) (sf) stress level for the Series A Notes, and a base case recovery rates of 21.5% at the CC (sf) stress level for the Series B Notes, a 10% and 20% decrease in the base case recovery rates, respectively. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery rate levels.

DBRS concludes that a hypothetical increase of the base case PD by 20% or a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a downgrade of the Series A Notes at A (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%, ceteris paribus, would also lead to a downgrade of the Series A Notes to A (low) (sf).

Regarding the Series B Notes, the rating would not be affected by any hypothetical change in either PD or 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: Francesco Amato, Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 28 November 2016

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

-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Rating CLOs Backed by Loans to European SMEs
-- Rating CLOs and CDOs of Large Corporate Credit
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Unified Interest Rate Model for European Securitisations
-- Cash Flow Assumptions for Corporate Credit Securitizations

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.