DBRS Upgrades Ratings on Caixabank Consumo 2, FT and Removes UR-Pos. Status

DBRS Ratings Limited (DBRS) upgraded its ratings on the notes issued by Caixabank Consumo 2, FT (the Issuer) as follows:

-- Series A: upgraded to A (sf) from A (low) (sf)
-- Series B: upgraded to BBB (high) (sf) from BB (sf)

The rating on the Series A notes addresses the timely payment of interest and the ultimate repayment of principal on or before the legal maturity date in April 2060.

The rating on the Series B notes addresses the ultimate payment of interest and repayment of principal on or before the legal maturity date in April 2060.

Additionally, DBRS removed the Series A and B notes (the Notes) from their Under Review with Positive Implications (UR-Pos.) status.

The rating actions are the result of an annual review of the transaction following publication of an update to the “European RMBS Insight: Spanish Addendum” on 2 October 2018 where DBRS updated its house price indexation and market value decline rates to reflect data through the third quarter of 2017.

The Notes 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). For additional information on the upgrade, please see DBRS’s press release entitled “DBRS Upgrades the Kingdom of Spain to A, Stable Trend”, published on 6 April 2018. The UR-Pos. status was extended on 27 July 2018, following the publication of the “European RMBS Insight: Spanish Addendum - Request for Comment” on 24 July 2018.

The rating actions are based on the following analytical considerations:

-- The portfolio performance, in terms of level of delinquencies and cumulative net losses, as of the July 2018 payment date;
-- Portfolio default rate (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables;
and
-- The current levels of credit enhancement (CE) available to the Series A and Series B notes to cover the expected losses assumed at the A (sf) and BBB (high) (sf) rating levels, respectively.

The Issuer is a securitisation collateralised by a portfolio of consumer loans granted by CaixaBank, S.A. (Caixabank) to individuals in Spain. As at 20 July 2018, the balance of the Series A notes was EUR 460.2 million and the balance of the Series B notes was EUR 130.0 million. The EUR 590.2 million portfolio (excluding defaulted receivables) consists of unsecured and mortgage loans, including standard contracts and drawdowns from revolving credit lines (Crédito Abiertos).

PORTFOLIO PERFORMANCE
As of the July 2018 payment date, 30-day to 60-day delinquencies represented 0.3% of the outstanding principal balance; 60-day to 90-day delinquencies represented 0.02%; and delinquencies greater than 90 days represented 2.1%. The gross cumulative defaults as a ratio of the original portfolio were 1.2%, of which 6.8% have been recovered so far.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the remaining pool and updated its PD and LGD base case assumptions on the remaining mortgage receivable portion of the portfolio to 4.9% and 31.9%. The respective assumptions on the remaining unsecured consumer loan pool were updated to 5.8% and 68.3%.

The updated assumptions incorporate the Spanish sovereign rating, which was upgraded to “A” from A (low) on 6 April 2018, as well as the updated market value declines and house price indexes, as per the “European RMBS Insight: Spanish Addendum” published on 2 October 2018.

CREDIT ENHANCEMENT
CE is provided to the Series A notes by the subordination of the Series B notes and the cash reserve; while CE to the Series B notes is provided solely by the cash reserve. CE to the Series A notes increased to 30.8% in July 2018, from 14.0% at closing; CE to the Series B notes increased to 8.8% from 4.0%.

An amortising cash reserve is available to cover senior expenses and missed interest and principal payments on the Series A notes. Once Series A notes have been fully amortised, the cash reserve will be available to cover any payment shortfalls on the Series B notes. The required cash reserve level is equal to the minimum between its original balance (EUR 52.0 million) and 8.0% of the notes balance, subject to a EUR 26.0 million floor. The reserve could have started amortising as of the July 2018 payment date, but because delinquencies greater than 90 days exceeded 1.5% of the portfolio balance, amortisation did not occur.

Caixabank acts as the account bank for the transaction. On the basis of Caixabank’s reference rating being one notch below DBRS’s Long-Term Critical Obligations Rating of AA (low), and the mitigants outlined in the transaction documents, DBRS considers the risk arising from the exposure to Caixabank to be consistent with the ratings assigned to the Notes.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings 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 these ratings include investor reports provided by CaixaBank Titulización, S.G.F.T., S.A. – 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 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 27 July 2018, when DBRS extended its UR-Pos. status on the Series A and Series B ratings.

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 these ratings, 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 mortgage receivables are 4.9% and 31.9%, respectively. The base case PD and LGD of the current pool of unsecured consumer loan receivables are 5.8% and 68.3%, respectively.

-- For example, if the LGD increases by 50%, the rating of the Series A notes would be expected to remain at A (sf) and the rating of the Series B notes would be expected to decrease to BBB (sf), ceteris paribus. If the PD increases by 50%, the rating of the Series A notes would be expected to remain at A (sf) and the rating of the Series B notes would be expected to decrease to BBB (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating of the Series A notes would be expected to remain at A (sf) and the rating of the Series B notes would be expected to decrease to BB (high) (sf), ceteris paribus.

Series A notes risk sensitivity:
-- 25% increase in LGD, expected rating of A (sf)
-- 50% increase in LGD, expected rating of A (sf)
-- 25% increase in PD, expected rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (sf)

Series B notes risk sensitivity:
-- 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD, expected rating of BBB (high) (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, expected rating of BBB (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)

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: Joana Seara da Costa, Assistant Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 20 June 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.

-- Master European Structured Finance Surveillance Methodology
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- European RMBS Insight Methodology
-- European RMBS Insight: Spanish Addendum
-- Legal Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers

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.