DBRS Maintains IM BCG RMBS 2, FONDO DE TITULIZACIÓN DE ACTIVOS Under Review with Positive Implications

DBRS Ratings Limited (DBRS) maintained the Under Review with Positive Implications (UR-Pos.) status on the A (high) (sf) rating of the Class A notes (the Notes) issued by IM BCG RMBS 2, FONDO DE TITULIZACIÓN DE ACTIVOS (the Issuer).

The Notes were originally placed Under Review with Positive Implications (UR-Pos.) on 30 April 2018, following the upgrade of the Kingdom of Spain’s Long-Term Foreign and Local Currency – Issuer Rating to “A” from A (low) (https://www.dbrs.com/research/326766/dbrs-takes-rating-actions-on-21-eu-structured-finance-transactions-following-spain-sovereign-rating-upgrade). The maintenance of the UR-Pos. status on the Notes follows an annual review of the transaction incorporating the Spanish sovereign rating upgrade and the following analytical considerations:

-- Portfolio performance, in terms of delinquencies, defaults and losses, as of the May 2018 payment date;
-- Updated portfolio default rate (PD), loss given default (LGD) and expected loss assumptions for the remaining collateral portfolio; and
-- Current credit enhancement available to the Notes to cover the expected losses at the A (high) (sf) rating level.

The rating of the Notes addresses the timely payment of interest and ultimate payment of principal on or before the Final Maturity Date in September 2061.

The Issuer is a securitisation of Spanish prime residential mortgage loans originated and serviced by Banco Caixa Geral, a subsidiary of Portugal’s largest bank, the government-owned Caixa Geral de Depósitos, S.A. The transaction follows Spanish securitisation law and closed in November 2013.

As of the May 2018 payment date, the portfolio amounted to EUR 979.9 million and consisted of 9,904 loans extended to borrowers residing in Spain and mostly distributed across Galicia, Catalonia and Extremadura. The respective concentrations were 21.3%, 19.9% and 17.2% as of April 2018. The collateral is amortising, with a pool factor of 75.4% after approximately four years since closing. The weighted-average current loan-to-value (LTV) ratio was 53.1%, down from 55.0% in April 2017.

PORTFOLIO PERFORMANCE
As of April 2018, two- to three-month arrears represented 0.4% of the outstanding portfolio balance, up from 0.2% in April 2017. As of April 2018, the 90+ delinquency ratio was 0.2%, unchanged since April 2017. As of April 2018, the cumulative default ratio was 0.4% and the cumulative loss ratio was 0.3%.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 4.0% and 29.5% respectively.

The improvement of the PD and LGD assumptions, which is credit positive, reflects the Spanish sovereign rating upgrade and the decrease of the portfolio LTV ratios as the portfolios continue to deleverage. As DBRS continues to analyse the possible effect of recent developments in the Spanish real estate market, the Notes remain UR-Pos.

CREDIT ENHANCEMENT
As of the May 2018 payment date, credit enhancement to the Notes was 11.9%, up from 9.0% at the transaction closing. Credit enhancement is provided by the overcollateralisation of the portfolio of mortgages and does not include the Cash Reserve, which is available to cover senior fees and interest shortfalls on the Notes. The reserve stands at its current target level of EUR 39 million.

Banco Santander S.A. is the account bank for the transaction. The account bank reference rating of A (high), which is one notch below the DBRS public Long-Term Critical Obligations Rating of Banco Santander S.A. of AA (low), is consistent with the Minimum Institution Rating, given the ratings assigned to the 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 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 this rating include investor and delinquency 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 not 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 30 April 2018 when DBRS placed the Class A notes UR-Pos., prior to which DBRS confirmed its A (high) (sf) rating on the Class A notes on 31 May 2017.

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”):

-- DBRS expected a base case PD and LGD for the portfolio 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 of the current pool of mortgages for the Issuer are 4.0% and 29.5%, respectively. At the A (high) (sf) rating level, the corresponding PD is 15.3% and the LGD is 43.4%.
-- 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 of the Class A notes would be expected to remain at A (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A notes would be expected to remain at A (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A notes would be expected to fall to BBB (high) (sf).

Class A notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of A (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)

This rating is UR-Pos. Generally, the conditions that lead to the assignment of reviews are resolved within a 90-day period.

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: Ilaria Maschietto, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 19 November 2013

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

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

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