DBRS Takes Rating Actions on Seven Rural Hipotecario Spanish RMBS Transactions

DBRS Ratings Limited (DBRS) took the following rating actions on the notes issued by seven Spanish residential mortgage-backed securities (RMBS) transactions originated and serviced by Spanish rural savings banks:

Rural Hipotecario X, Fondo de Titulización de Activos (RH X):
-- Series A confirmed at AA (sf)
-- Series B confirmed at A (sf)
-- Series C confirmed at BBB (low) (sf)

Rural Hipotecario XI, Fondo de Titulización de Activos (RH XI):
-- Series A confirmed at A (high) (sf)

Rural Hipotecario XII, Fondo de Titulización de Activos (RH XII):
-- Series A upgraded to AA (sf) from AA (low) (sf)

Rural Hipotecario XIV, Fondo de Titulización de Activos (RH XIV):
-- Series A upgraded to AA (high) (sf) from AA (low) (sf)
-- Series B upgraded to A (low) (sf) from BBB (sf)

Rural Hipotecario XV, Fondo de Titulización de Activos (RH XV):
-- Series A maintained at AA (low) (sf) Under Review with Positive Implications (UR-Pos.)
-- Series B maintained at BBB (sf) UR-Pos.

Rural Hipotecario XVI, Fondo de Titulización de Activos (RH XVI):
-- Series A Notes maintained at AA (low) (sf) UR-Pos.
-- Series B Notes maintained at BBB (sf) UR-Pos.

Rural Hipotecario XVII, Fondo de Titulización de Activos (RH XVII):
-- Bonds maintained at A (high) (sf) UR-Pos.

The rated notes of RH XV, RH XVI and RH XVII were placed 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) and DBRS’s ongoing analysis of the Spanish real estate market (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 rated notes follows an annual review of the three transactions incorporating the Spanish sovereign rating upgrade as DBRS continues to analyse the possible effect of recent developments in the Spanish real estate market.

The following analytical considerations were regarded for all seven transactions:

-- Portfolio performance, in terms of delinquencies and defaults.
-- Portfolio default rate (PD), loss given default (LGD) and expected loss assumptions for the remaining receivables.
-- Current available credit enhancement (CE) available to the notes to cover the expected losses at their respective rating levels.
The ratings of the most senior notes of each transaction address the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date.

The ratings of the subordinated notes address the ultimate payment of interest and principal on or before the legal final maturity date.

PORTFOLIO PERFORMANCE AND ASSUMPTIONS

-- For RH X, as of 30 April 2018, the cumulative default ratio was 3.6%. As of 17 May 2018, the 30+ and 90+ delinquency ratios were 3.7% and 1.2%, respectively.
-- For RH XI, as of 28 February 2018, the cumulative default ratio was 3.4%. As of 16 March 2018, the 30+ and 90+ delinquency ratios were 3.8% and 1.1%, respectively.
-- For RH XII, as of 28 February 2018, the cumulative default ratio was 2.4%. As of 14 March 2018, the 30+ and 90+ delinquency ratios were 4.0% and 0.9%, respectively.
-- For RH XIV, as of 30 April 2018, the cumulative default ratio was 0.4%. As of 4 May 2018, the 30+ and 90+ delinquency ratios were 1.1% and 0.5%, respectively.
-- For RH XV, as of 30 April 2018, the cumulative default ratio was 0.3%. As of 7 May 2018, the 30+ and 90+ delinquency ratios were 1.0% and 1.4%, respectively.
-- For RH XVI, as of 31 March 2018, the cumulative default ratio was 0.6%. As of 6 April 2018, the 30+ and 90+ delinquency ratios were 1.9% and 0.7%, respectively.
-- For RH XVII, as of 31 March 2018, the cumulative default ratio was 0%. As of 6 April 2018, the 30+ and 90+ delinquency ratios were 1.3% and 0.6%, respectively.

The performance of each transaction is within DBRS’s expectations.

DBRS conducted a loan-by-loan analysis of the remaining pool of the receivables in each transaction and has updated its base case PD and LGD assumptions as follows:
-- For RH X, DBRS has updated its base case PD and LGD assumptions to 4.9% and 21.3%, respectively.
-- For RH XI, DBRS has updated its base case PD and LGD assumptions to 5.1% and 26.3%, respectively.
-- For RH XII, DBRS has updated its base case PD and LGD assumptions to 5.1% and 25.5%, respectively.
-- For RH XIV, DBRS has updated its base case PD and LGD assumptions to 4.5% and 32.1%, respectively.
-- For RH XV, DBRS has updated its base case PD and LGD assumptions to 4.1% and 26.1%, respectively.
-- For RH XVI, DBRS has updated its base case PD and LGD assumptions to 4.6% and 35.2%, respectively.
-- For RH XVII, DBRS has updated its base case PD and LGD assumptions to 6.8% and 33.6%, respectively.

For the three transactions that were placed UR-Pos. (RH XV, RH XVI and RH XVII), the improvement of the PD and LGD assumptions, which is credit positive, reflects the Spanish sovereign rating upgrade and the decrease of the portfolio loan-to-value ratios as the portfolios continue to deleverage. As DBRS continues to analyse the possible effect of recent developments in the Spanish real estate market, all the rated notes of the three aforementioned transactions remain UR-Pos.

CREDIT ENHANCEMENT AND RESERVE FUND

For each transaction, credit enhancement (CE) to the rated notes is provided by the subordination of junior classes and a Reserve Fund.

-- For RH X, Series A CE was 19.0%, Series B CE was 15.0% and Series C CE was 6.7%, as of the May 2018 payment date.
-- For RH XI, Series A CE was at 18.6%, as of the March 2018 payment date.
-- For RH XII, Series A CE was at 20.1%, as of the March 2018 payment date.
-- For RH XIV, Series A CE was at 27.7% and Series B CE was at 9.3%, as of the April 2018 payment date.
-- For RH XV, Series A CE was at 22.5% and Series B CE was at 7.6%, as of the April 2018 payment date.
-- For RH XVI, Series A Notes CE was at 26.3% and Series B Notes CE was at 8.3%, as of the April 2018 payment date.
-- For RH XVII, Bonds CE was at 37.9%, as of the April 2018 payment date.

Citibank Europe plc, Spanish Branch acts as the Account Bank for all seven transactions. The Account Bank’s DBRS Private Long-Term Rating is consistent with the Minimum Institution Rating given the rating assigned to the most senior class of rated notes in each transaction, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.

Banco Cooperativo Español S.A. (Banco Cooperativo) acts as the basis Swap Counterparty for RH X, RH XI and RH XII. Banco Cooperativo’s DBRS Long-Term Issuer Rating of BBB does not meet the first rating threshold given the current ratings assigned to the senior notes of Rural X and Rural XII, as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology. As a result, DBRS has assumed that the basis risk in these transactions is unhedged for the purpose of the cash flow analysis. DBRS has modelled the interest rate basis risk associated with the mismatch between the interest rates on the assets (the majority of the loans pay interest linked to 12-month Euribor) and the interest rate paid on the notes (linked to 3-month Euribor) using its “Interest Rate Stresses for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology”. DBRS has applied the principal methodology consistently and conducted a review of the transactions in accordance with the principal methodology.

Some ratings are UR-Pos. DBRS is undertaking a review and will remove these ratings from this status as soon as it is appropriate.

A review of the transactions’ legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

Other methodologies referenced in these transactions 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 Europea de Titulización, S.A., SGFT, the Management Company, and loan-level data provided by 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 ratings, 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 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 RH XV, RH XVI and RH XVII took place on 30 April 2018, when DBRS placed all of the rated notes in the three transactions under review with positive implications. The last rating action on all seven transactions took place on 1 June 2017, when DBRS took multiple rating actions on each of the transactions.

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 with 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.

-- For RH X, the base case PD and LGD assumptions for the collateral pool are 4.9% and 21.3%, respectively. At the AA (sf) rating level, the PD and LGD are 20.5% and 38.8%, respectively. At the A (sf) rating level, the PD and LGD are 16.8% and 34.1%, respectively. At the BBB (low) (sf) rating level, the PD and LGD are and 11.3% and 25.8%, respectively.

-- For RH XI, the base case PD and LGD assumptions for the collateral pool are 5.1% and 26.3%, respectively. At the A (high) (sf) rating level, the PD and LGD are 17.8% and 39.4%, respectively.

-- For RH XII, the base case PD and LGD assumptions for the collateral pool are 5.1% and 25.5%, respectively. At the AA (sf) rating level, the PD and LGD are 21.0% and 43.3%, respectively.

-- For RH XIV, the base case PD and LGD assumptions for the collateral pool are 4.5% and 32.1%, respectively. At the AA (high) (sf) rating level, the PD and LGD are 20.7% and 45.3%, respectively. At the A (low) (sf) rating level, the PD and LGD are 14.1% and 40.6%, respectively.

-- For RH XV, the base case PD and LGD assumptions for the collateral pool are 4.1% and 26.1%, respectively. At the AA (low) (sf) rating level, the PD and LGD are 17.4% and 44.3%, respectively. At the BBB (sf) rating level, the PD and LGD are 10.8% and 33.6%, respectively.

-- For RH XVI, the base case PD and LGD assumptions for the collateral pool are 4.6% and 35.2%, respectively. At the AA (low) (sf) rating level, the PD and LGD are 18.5% and 47.9%, respectively. At the BBB (sf) rating level, the PD and LGD are 11.7% and 39.9%, respectively.

-- For RH XVII, the base case PD and LGD assumptions for the collateral pool are 6.8% and 33.6%, respectively. At the A (high) (sf) rating level, the PD and LGD are 20.8% and 43.7%, respectively.

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

RH X Series A Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in LGD, expected rating of A (sf)
-- 25% increase in PD, expected rating of AA (low) (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 BBB (high) (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)

RH X Series B Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (low) (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)

RH X Series C Risk Sensitivity:
-- 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD, expected rating of BB (high) (sf)
-- 50% increase in PD, expected rating of BB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (low) (sf)
RH XI Series A Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of A (low) (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)
RH XII Series A Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (sf)
-- 25% increase in PD, expected rating of AA (low) (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 BBB (high) (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)
RH XIV Series A Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)

RH XIV Series B Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD, expected rating of BBB (high) (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 (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)

RH XV Series A Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD, expected rating of AA (low) (sf)
-- 50% increase in PD, expected rating of AA (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)
RH XV Series B Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (sf)
-- 50% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD, expected rating of BBB (sf)
-- 50% increase in PD, expected rating of BBB (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)
RH XVI Series A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD, expected rating of AA (low) (sf)
-- 50% increase in PD, expected rating of AA (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)
RH XVI Series B Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (sf)
-- 50% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD, expected rating of BBB (sf)
-- 50% increase in PD, expected rating of BBB (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)
RH XVII Series A 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 (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
This rating is Under Review with Positive Implications. Generally, the conditions that lead to the assignment of reviews are resolved within a 90-day period.

For further information on DBRS historic 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: Kevin Ma, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date of RH X: 8 February 2013
Initial Rating Date of RH XI: 8 February 2013
Initial Rating Date of RH XII: 8 February 2013
Initial Rating Date of RH XIV: 15 July 2013
Initial Rating Date of RH XV: 19 July 2013
Initial Rating Date of RH XVI: 26 July 2013
Initial Rating Date of RH XVII: 27 June 2014

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960.

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

-- 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
-- Interest Rate Stresses for European Structured Finance Transactions
-- Derivative Criteria 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.