DBRS Confirms Ratings of IM Sabadell PYME 11, FT

DBRS Ratings GmbH (DBRS) confirmed its ratings of IM Sabadell PYME 11, FT (the Issuer) as follows:

-- Series A Notes at A (high) (sf)
-- Series B Notes at CCC (low) (sf)

The rating of the Series A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date. The rating of the Series B Notes addresses the ultimate payment of interest and principal on or before the legal final maturity date.

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

-- Portfolio performance in terms of delinquencies and defaults as of the September 2018 payment date.
-- Portfolio default rates, recovery rates and expected loss assumptions for the remaining collateral pools.
-- The credit enhancement (CE) available to the rated notes to cover the expected losses at their respective rating levels.

The Issuer is a cash flow securitisation collateralised by a portfolio of bank loans originated and serviced by Banco de Sabadell, S.A. (Sabadell), to self-employed individuals and small and medium-sized enterprises (SMEs) based in Spain.

PORTFOLIO PERFORMANCE
The portfolio is performing within DBRS’s expectations. As of September 2018, the 90+ delinquency ratio was at 1.6% and the cumulative default ratio was at 0.1%.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the remaining pool and updated its default rate and recovery assumptions. The base case probability of default (PD) has been maintained at 1.99% for normal loans and 10.08% for refinanced loans.

CREDIT ENHANCEMENT
The CE available to all rated notes continues to increase as the transaction deleverages. As of the September 2018 payment date, the CE available to the Series A Notes and Series B Notes was 30.3% and 6.6%, respectively.

Sabadell acts as the Account Bank for the transaction. Based on the reference rating of Sabadell at A (low), one notch below DBRS’s Long-Term Critical Obligations Rating of “A”, the downgrade provisions outlined in the transaction documents, and structural mitigants, DBRS considers the risk arising from the exposure to Sabadell to be consistent with the ratings assigned to the Series A 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 ratings is: “Rating CLOs Backed by Loans to European SMEs.”

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the surveillance section of 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/333487/rating-sovereign-governments.pdf.

The sources of data and information used for these ratings include investor and servicer reports provided by the Management Company 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 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 19 December 2017 when DBRS finalised the ratings of Series A and Series B Notes at A (high) (sf) and CCC (low) (sf), respectively.

The lead analyst responsibilities for this transaction have been transferred to Alfonso Candelas.

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”):

-- Probability of Default Rates Used: Base case PD of 1.99% for normal loans and 10.08% for refinanced loans, a 10% increase of the base case and a 20% increase of the base case PD.
-- Recovery Rates Used: Base case recovery rates of 24.4% at the A (high) (sf) stress level and 31.6% at the CCC (low) (sf) stress level for the Series A Notes and Series B Notes, respectively, a 10% and 20% decrease in the base case recovery rates. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery rate levels.

For the Series A Notes, DBRS concluded that a hypothetical increase of the base case PD by 20%, ceteris paribus, would lead to a confirmation of the Series A Notes at A (high) (sf), and a hypothetical decrease of the recovery rate by 20%, ceteris paribus, which would lead to a confirmation of the Series A Notes at A (high) (sf). A scenario combining both an increase in the base case PD by 10% and a decrease in the base case recovery rate by 10%, ceteris paribus, would also lead to a confirmation of the Series A Notes at A (high) (sf).

For the Series B Notes, DBRS concluded that a hypothetical increase of the base case PD by 20%, ceteris paribus, would lead to a confirmation of the Series B Notes at CCC (low) (sf), and a hypothetical decrease of the recovery rate by 20%, ceteris paribus, which would lead to a confirmation of the Series B Notes at CCC (low) (sf). A scenario combining both an increase in the base case PD by 10% and a decrease in the base case recovery rate by 10%, ceteris paribus, would also lead to a confirmation of the Series B Notes at CCC (low) (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 GmbH are subject to EU and US regulations only.

Lead Analyst: Alfonso Candelas, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 15 December 2017

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Germany

Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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

-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Rating CLOs Backed by Loans to European SMEs
-- Rating CLOs and CDOs of Large Corporate Credit
-- European RMBS Insight Methodology
-- European RMBS Insight: Spanish Addendum
-- Operational Risk Assessment for European Structured Finance Servicers
-- Interest Rate Stresses for European Structured Finance Transactions
-- Cash Flow Assumptions for Corporate Credit Securitizations

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.