DBRS Confirms Rating on Caja Rural de Granada Covered Bond Programme

DBRS Ratings Limited (DBRS) confirmed its rating of A (high) on the single stand-alone Cédula Hipotecaria (CH, Spanish mortgage covered bonds) issued by Caja Rural de Granada S.C.C. (CRG, the Issuer). The confirmation follows the completion of a full review of the Programme.

The rating is based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of BBB. CRG is the Issuer and Reference Entity for the programme. There is no Critical Obligations Rating associated with CRG, but DBRS considers Spain a jurisdiction for which Covered Bonds are a particularly important financing tool. As such, the CBAP is set at the level of the Issuer Rating plus one notch;
-- A Legal and Structuring Framework (LSF) Assessment of Average associated with CRG CH;
-- A Cover Pool Credit Assessment (CPCA) of BBB (low), which is the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L);
-- An LSF-L of A (low);
-- A two-notch uplift for high recovery prospects; and
-- A level of overcollateralisation (OC) of 163% to which DBRS gives credit, being the minimum observed OC level during the past 12 months, adjusted by a scaling factor of 0.90.

The transaction was analysed using the DBRS European Covered Bond Cash Flow Tool. The main assumptions focused on the timing of defaults, recoveries of the assets, interest rate stresses and market value spreads to calculate liquidation values on the cover pool (CP).

Everything else being equal, a one-notch downgrade of the CBAP would lead to a one-notch downgrade of the LSF-L, resulting in a one-notch downgrade of the covered bonds rating. In addition, all else unchanged, the CH rating would be downgraded if any of the following were to occur: (1) The CPCA were downgraded below BBB (low); (2) The sovereign rating of the Kingdom of Spain were downgraded below A (low); (3) The LSF Assessment associated with the programme were downgraded; (4) The quality of the CP and the level of OC were no longer sufficient to support a two-notch uplift for high recovery prospects; (5) The relative amortisation profile of the CH and CP were to move adversely; or (6) Volatility in the financial markets caused the currently estimated market value spreads to increase.

As of today, the total outstanding amount of CH was EUR 600 million, while as of September 2018, the aggregate balance of the mortgages in the cover pool was EUR 1.83 billion. This resulted in a total estimated OC of 205%. As of September 2018, the eligible CP stood at EUR 1.32 billion, resulting in an estimated eligible OC of 121%.

Spanish Covered Bonds are backed by the entire mortgage book of the bank, except those mortgage loans pledged to securitisations and bonos hipotecarios, and having non-residential assets is a common feature among CH. As of September 2018, the CP amounted to EUR 1.83 billion of mortgage loans with a 60% residential versus 40% non-residential split (by outstanding amount). The CP comprises 22,588 loans with a weighted-average current unindexed loan-to-value ratio of 54.9%. This is a 71-month seasoned CP that is geographically concentrated in the Autonomous Community of Andalusia (95%).

The vast majority of the loans in the CP (approximately 98%) are floating rate, while the liabilities pay a fixed coupon. As is customary in the Spanish market, the CH holders do not receive the benefit of any swap contract to hedge interest rate mismatches, and this risk has been accounted for in DBRS’s cash flow modelling.

The weighted-average life of the assets is roughly ten years, while that of the covered bonds is roughly nine years. This generates an asset liability mismatch that is partly mitigated by the available OC. All assets and liabilities are denominated in euros.

For further information on Caja Rural de Granada CH, please refer to the rating report available on www.dbrs.com.

DBRS has assessed the LSF related to CRG CH as Average according to its “Rating European Covered Bonds” methodology. For more information, please refer to DBRS’s Commentaries “Spanish Mortgage Covered Bonds: Legal and Structuring Framework Review” and “DBRS Assigns Legal and Structuring Framework Assessment to Spanish Mortgage Covered Bonds Programmes,” available at www.dbrs.com.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is “Rating European Covered Bonds”.

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: https://www.dbrs.com/research/333487/rating-sovereign-governments.

The sources of data and information used for this rating include historical dynamic performance data, stratification tables on the whole CP and CP loan-by-loan data provided by CRG that allowed DBRS to further assess the portfolio.

DBRS did not rely upon third-party due diligence in order to conduct its analysis. At the time of 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 programme took place on 16 May 2018, when DBRS assigned an A (high) rating to CRG’s newly issued covered bond.

Information regarding DBRS ratings, including definitions, policies and methodologies is available on www.dbrs.com.

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: Alessandra Maggiora, Assistant Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 23 December 2013

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

-- Rating European Covered Bonds
-- Rating European Covered Bonds Addendum: Market Value Spreads Range
-- Global Methodology for Rating Banks and Banking Organisations
-- DBRS Criteria: Guarantees and Other Forms of Support
-- Legal Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- European RMBS Insight Methodology
-- European RMBS Insight: Spanish Addendum
-- Operational Risk Assessment for European Structured Finance Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating CLOs and CDOs of Large Corporate Credit
-- Rating CLOs Backed by Loans to European SMEs
-- Rating Sovereign Governments

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.