DBRS Confirms and Upgrades the Notes Issued by Caixabank RMBS 2, FT

DBRS Ratings Limited (DBRS) took the following rating actions on the Class A and B Notes issued by Caixabank RMBS 2, FT (the Issuer):

-- Class A Notes confirmed at A (sf)
-- Class B Notes upgraded to B (high) (sf) from B (sf)

The rating on the Class A Notes addresses the timely payment of interest and the ultimate payment of principal payable on or before the Legal Maturity Date in January 2061. The rating on the Class B Notes addresses the ultimate payment of interest and principal payable on or before the Legal Maturity Date in January 2061.

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

-- Portfolio performance in terms of delinquencies and defaults, as of the January 2018 payment date.
-- Portfolio default rate (PD), loss given default (LGD) and expected loss assumptions for the remaining collateral pool.
-- The current available credit enhancement (CE) to the Class A and Class B Notes to cover the expected losses at the A (sf) and B (high) (sf) rating levels, respectively.

Caixabank RMBS 2, FT is a securitisation of first-lien residential mortgage loans and first-lien multi-credito (drawn credit lines) mortgages on properties in Spain originated and serviced by CaixaBank, S.A. (CaixaBank) that closed in March 2017.

PORTFOLIO PERFORMANCE AND ASSUMPTIONS
The performance of the collateral portfolio is within DBRS’s expectations. As of January 2018, loans more than 90 days in arrears represented 1.0% of the outstanding performing portfolio collateral balance. The cumulative default ratio was at 0.03% of the original portfolio balance.

DBRS conducted a loan-by-loan analysis on the remaining pool and updated its PD and LGD assumptions on the remaining portfolio collateral pool to 23.3% and 41.5%, respectively, at the A (sf) rating level, and to 9.6% and 30.2%, respectively, at the B (high) (sf) rating level.

CREDIT ENHANCEMENT
As of the January 2018 payment date, the CE available to the Class A and B Notes increased to 15.4% and 5.0% from 14.8% and 4.8%, respectively, since closing. The CE consists of subordination of the Class B Notes and a transaction Reserve Fund (RF). The RF provides liquidity support and credit support to the Class A Notes. After the first two years from closing, the RF may amortise over the life of the transaction, subject to certain amortisation triggers. The RF is currently at its target level of EUR 129.2 million, which is the minimum of 6% of the then current outstanding balance of the rated notes and 4.8% of their initial balance. Following the payment in full of the Class A Notes, the transaction RF will also provide liquidity and credit support to the Class B Notes.

CaixaBank acts as the Account Bank provider for the transaction. The Account Bank reference rating of “A”, which is one notch below the DBRS Long-Term Critical Obligations Rating (COR) of CaixaBank at A (high), complies with the Minimum Institution Rating given the rating assigned to the Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: “Master European Structured Finance Surveillance Methodology.”

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

A review of the transaction legal documents was not conducted as the 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 this rating include reports and information received from CaixaBank 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 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 24 March 2017, when DBRS finalised its provisional ratings of A (sf) and B (sf) on the Class A Notes and Class 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 at 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):
-- DBRS expected a lifetime base-case PD and LGD for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.
-- The base-case PD and LGD assumptions for the remaining portfolio collateral are 8.5% and 29.2%, respectively. At the A (sf) rating level, the corresponding PD is 23.3% and the LGD is 41.5%. At the B (high) (sf) rating level, the corresponding PD is 9.6% and the LGD is 30.2%.

-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating on the Class A notes would be expected to be at BBB (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A Notes would be expected to be at BBB (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and the LGD increase by 50%, the rating on the Class A Notes would be expected to be at BBB (sf).

Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of A (sf)
-- 50% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD, expected rating of A (sf)
-- 50% increase in PD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (sf)

Class B Notes risk sensitivity:
-- 25% increase in LGD, expected rating of B (high) (sf)
-- 50% increase in LGD, expected rating of B (high) (sf)
-- 25% increase in PD, expected rating of B (high) (sf)
-- 50% increase in PD, expected rating of B (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of B (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of B (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of B (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating below B (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: Francesco Amato, Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 20 March 2017

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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology
-- European RMBS Insight Methodology
-- European RMBS Insight: Spanish Addendum
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Interest Rate Stresses for European Structured Finance Transactions

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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.