DBRS Confirms and Upgrades Ratings on IM EVO Finance 1, Fondo de Titulización

DBRS Ratings Limited (DBRS) took the following rating actions on the bonds issued by IM EVO Finance 1, Fondo de Titulización (the Issuer):

-- Series 2017-01, Class A confirmed at A (high) (sf)
-- Series 2017-01, Class B upgraded to BBB (high) (sf) from BBB (sf)

The ratings address the timely payment of interest and ultimate payment of principal on or before the legal maturity date in September 2050.

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

-- Portfolio performance, in terms of delinquencies, defaults and losses.
-- Updated probability of default (PD), loss given default (LGD) rates and expected loss assumptions.
-- No revolving termination events have occured.
-- Current available credit enhancement to the notes to cover the expected losses at their respective rating levels.

The Issuer is a securitisation of consumer loan receivables granted by EVO Finance, E.F.C., S.A.U. to individuals in Spain, through a network of small- and medium-sized commercial establishments as well as large, nationwide retailers. The EUR 426.2 million portfolio, as of the September 2018 payment date, exclusively consisted of fixed-rate loans.

PORTFOLIO PERFORMANCE
The gross cumulative default ratio was 0.7% of the aggregated original portfolio as of September 2018, of which 2.2% has been recovered so far. The 90+ delinquency ratio was 0.8%.

PORTFOLIO ASSUMPTIONS
DBRS conducted an analysis of the pool of receivables and has maintained its expected probability of default (PD) and its base case recovery rate (RR) assumptions based on the worst-case portfolio composition. The sovereign-adjusted PD and RR assumptions were updated to 3.7% and 20.8%, reflecting DBRS’s upgrade of Spain’s Long-Term Foreign Currency rating to ‘A’ with a Stable trend on 6 April 2018.

REVOLVING PERIOD
The transaction includes a two-year revolving period that is structured with the option to extend for successive two-year periods up to six years before the legal maturity date. During the revolving period, the Issuer has the option to purchase new receivables up to a maximum aggregate outstanding balance of EUR 700.0 million. The acquisition of additional receivables will be funded through any of the following: (1) the principal collections generated by the securitised portfolio; (2) the issuance of further notes; or (3) the increase of the outstanding balance of the existing notes. Both the second- and third-funding sources are subject to certain conditions, and the aggregate balance of the outstanding notes cannot exceed EUR 500.0 million. Additionally, a credit line will be available to fund the reserve fund up to its required level and pay any portfolio purchase price not covered by the issuance of notes. Concentration limits are in place to mitigate against any negative evolution of the portfolio and performance triggers are included in the revolving period termination events. To date, all triggers are being met.

The portfolio balance increased to EUR 426.2 from EUR 341.8 million at closing, through the increase of the credit line.

CREDIT ENHANCEMENT
As of September 2018, credit enhancement to Class A Notes was 37.4%, up from 21.5% at the DBRS initial rating. Credit enhancement to the Class B Notes was 31.4%, up from 14.1% at the DBRS initial rating.

The transaction benefits from liquidity support from a reserve fund. The reserve fund is available to cover senior expenses and missed interest payments on the rated notes and has a required balance of 2% of the outstanding notes balance during the revolving period, and thereafter it will be the minimum between 4% of the outstanding notes balance and 2% of the notes balance at the end of the revolving period, subject to a floor of EUR 2.0 million. The reserve is currently at its target level.

Banco Santander SA acts as the account bank for the transaction. Banco Santander SA reference rating, which is one notch below its DBRS Long-Term Critical Obligations Rating of AA (low), is consistent with the Minimum Institution Rating, given the rating assigned to the Series 2017-1, Class A and Series 2017-1, Class B, 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 ratings is the “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.

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.

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 and servicer reports provided by InterMoney Titulización S.G.F.T., S.A., and loan-by-loan data provided by InterMoney Titulización S.G.F.T., S.A. and European Data Warehouse 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 10 November 2017, when DBRS finalised its provisional ratings assigned to the Class A and Class B Notes.

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 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 of the current pool of receivables are 3.7% and 79.2%, respectively.

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)
-- 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 AA (high) (sf)
-- 50% increase in PD, 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 (sf)

Class 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)
-- 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 (sf)
-- 50% increase in PD, expected rating of BBB (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (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: Vito Natale, Senior Vice President
Initial Rating Date: 7 November 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
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- 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.