DBRS Assigns AAA Rating to CaixaBank S.A. Covered Bonds New Issuance

DBRS Ratings Limited (DBRS) assigned a rating of AAA to cédula ES0440609420 issued by CaixaBank, S.A. (CaixaBank or the Issuer) under the CaixaBank S.A. Covered Bonds (Cédulas Hipotecarias - Mortgages) programme (CaixaBank CH or the Programme). Cédula ES0440609420 is a EUR 4.75 billion floating-rate security indexed to six-month Euribor + 0.15%, maturing in December 2021.

At the same time, DBRS discontinued the ratings of cédula ES0413985021 and confirmed the AAA ratings of CaixaBank’s outstanding DBRS-rated cédulas hipotecarias (CH, the Spanish mortgage covered bonds).

Following the issuance, there are EUR 53.0 billion of CH outstanding under the Programme, of which DBRS rates EUR 49.4 billion.

The ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of AA (low), which is CaixaBank’s Long Term Critical Obligations Rating. CaixaBank is the Issuer and Reference Entity (RE) for the Programme.
-- A Legal and Structuring Framework (LSF) Assessment of “Average” associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of BBB (high), which is the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L).
-- An LSF-L of AA. In DBRS’s view, CaixaBank CH’s LSF-L is limited to one notch above the CBAP.
-- A two-notch uplift for high recovery prospects.
-- A level of overcollateralisation (OC) of 61% to which DBRS gives credit, which is the minimum level observed in the last 12 months adjusted by a scaling factor of 0.85.

The transaction was analysed with the DBRS European Covered Bond Cash Flow tool. The main assumptions focused on the timing of defaults and 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 ratings would be downgraded if any of the following occurred: (1) the CPCA was downgraded below BBB (high); (2) the sovereign rating of the Kingdom of Spain was downgraded below A (low); (3) the LSF assessment associated with the Programme was 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 moved adversely; or (6) volatility in the financial markets caused the currently estimated market value spreads to increase.

As at 30 September 2018, the aggregate balance of the mortgages in the CP was EUR 91.1 billion, yielding a current nominal OC ratio of 72%.

As of September 2018, the CP comprised 1,197,092 mortgage loans, with a weighted-average (WA) current unindexed loan-to-value ratio of 55.2%. The pool is composed of 77.1% residential, 16.1% commercial, 6.1% developers and 0.8% land loans. Geographically, the pool is mainly distributed in Catalonia (28.5% by outstanding balance), as well as Andalusia (17.1%) and the Madrid region (15.4%). The pool is 101 months seasoned.

As is customary in the Spanish market, the CH holders do not receive the benefit of any swap contract to hedge the mismatches between the interest yield by the CP (82.3% floating rate linked to different indexes and resets) and the interest due on the CH (37.2% paying fixed and 62.8% floating rate linked to different indexes and resets). The two foreign-currency CH amount to a nominal of USD 966.2 million, equivalent to roughly EUR 853 million at the spot rate as of 30 November 2018 (or 1.6% of the CH outstanding). Of the loans, 0.9% were originated in a currency other than euros. DBRS considers this exposure to be negligible and to be mitigated by the available OC.

The DBRS-calculated WA life of the assets is roughly nine years while that of the covered bonds is 5.5 years. This generates an asset-liability mismatch that is mitigated by the available OC.

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

For further information on the Programme, please refer to the rating report at www.dbrs.com.

Notes:
All figures are in euros unless otherwise noted.

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

In DBRS’s opinion, the changes under consideration do not require the application of the entire principal methodology. Therefore, DBRS focused on the cash flow analysis. A review of the transaction legal documents was limited to the documentation pertaining to the issuance of cédula ES0440609420. All the other 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 these ratings include investor reports provided by the Issuer.

DBRS did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the 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 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 23 November 2018, when DBRS assigned a rating of AAA to cédula ES0440609404, discontinued the ratings of the CH that had matured, and confirmed the AAA ratings of the other outstanding CH rated by DBRS.

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: Roger Bickert, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 20 January 2016

DBRS Ratings Limited
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Registered and incorporated under the laws of England and Wales: Company No. 7139960

The rating methodologies 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
-- Global Methodology for Rating Banks and Banking Organisations
-- 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.