DBRS Finalises Provisional Ratings of Caixabank Leasings 3, FT

DBRS Ratings GmbH (DBRS) finalised its provisional ratings of the EUR 1,573.8 million Series A Notes (Series A Notes) and the EUR 256.2 million Series B Notes (the Series B Notes; together with the Series A Notes, the Notes) issued by Caixabank Leasings 3, FT (the Issuer):

-- Series A Notes at AA (sf)
-- Series B Notes at B (high) (sf)

The transaction is a cash flow securitisation collateralised by a portfolio of lease contracts originated by CaixaBank, S.A. (CaixaBank or the Originator) to enterprises and self-employed individuals based in Spain. As at 20 June 2019, the transaction’s securitised portfolio included 36,305 lease contracts of credit to 19,357 obligor groups, totalling EUR 1,830 million.

The rating on the Series A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal maturity date in December 2039. The rating on the Series B Notes addresses the ultimate payment of interest and principal on or before the legal maturity date in December 2039.

Interest and principal payments on the Notes will be made quarterly on the 19th of March, June, September and December with the first payment date on 19 September 2019. The Series A Notes will pay a fixed interest rate of 0.75% and the Series B Notes will pay a fixed interest rate of 1.00%.

The securitised pool comprises three types of leases: equipment leases (38.80% of the outstanding portfolio balance), automotive leases (35.89% of the outstanding portfolio balance) and real estate leases (25.32% of the outstanding portfolio balance). The final portfolio has relatively low industry concentration but high borrower group concentration. The largest borrower group represents 2.34% of the portfolio balance, while the largest ten and 20 borrower groups represent 14.39% and 19.86% of the portfolio balance, respectively. Geographically, there is a borrower concentration in the Spanish region of Catalonia (28.86% of the portfolio balance), which is to be expected given that Catalonia is the Originator’s home region. The top three industry sectors according to DBRS’s industry definition are Surface Transport, Building & Development and Food Products, representing 24.51%, 20.52% and 7.35% of the portfolio outstanding balance, respectively.

The ratings are based on DBRS’s review of the following analytical considerations:

-- The transaction capital structure, including the form and sufficiency of available credit enhancement.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested.
-- The Originator/Servicer’s capabilities with respect to originations, underwriting and servicing.
-- DBRS conducted an operation risk review on the Caixabank, SA (Caixabank) premises and deems it to be an acceptable servicer.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The sovereign rating of the Kingdom of Spain, currently rated “A” with a Stable trend by DBRS.
-- The consistency of the transaction’s legal structure with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology, the presence of legal opinions that address the true sale of the assets to the Issuer and non-consolidation of the Issuer with the seller.

DBRS determined these ratings as follows, per the principal methodologies specified below:

-- The probability of default (PD) for the portfolio was determined using the historical performance information supplied. DBRS assumed different annualised PDs depending on the type of leases (1.62% for equipment leases, 0.98% for auto leases and 0.75% for real estate leases). In cases where the borrower group balance represented more than 1.0% of the portfolio balance, the PD has been multiplied for a 1.5.
-- The assumed weighted-average life (WAL) of the portfolio is 3.01 years.
-- The PD and WAL were used in the DBRS Diversity Model to generate the hurdle rate for the respective ratings.
-- The recovery rate was determined considering historical information of data supplied.
-- The transaction structure was analysed in Intex DealMaker considering the default rates at which the Notes did not return all specified cash flows.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Rating European Consumer and Commercial Asset-Backed Securitisations.”

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

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 but are not limited to the Originator, CaixaBank, the Issuer and CaixaBank Titulización S.G.F.T., S.A.U.

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

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.

These ratings concern a newly issued financial instrument.

This is the first rating action since the Initial Rating Date.

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”):

-- Expected default of 5.02%: a 25% and 50% increase.
-- Expected loss given default (LGD) of 54.53%: a 25% and 50% increase.

Scenario 1: A 25% increase in the expected default.
Scenario 2: A 50% increase in the expected default.
Scenario 3: A 25% increase in the expected LGD.
Scenario 4: A 25% increase in the expected default and 25% increase in the expected LGD.
Scenario 5: A 50% increase in the expected default and 25% increase in the expected LGD.
Scenario 6: A 50% increase in the expected LGD.
Scenario 7: A 25% increase in the expected default and 50% increase in the expected LGD.
Scenario 8: A 50% increase in the expected default and 50% increase in the expected LGD.

DBRS concludes that the expected ratings under the eight stress scenarios are:
--Series A Notes: AA (low) (sf), A (high) (sf), A (high) (sf), A (sf), BBB (sf), A (sf), A (high) (sf), A (low) (sf), and BBB (high) (sf)
--Series B Notes: B (high) (sf), B (low) (sf), CCC (sf), B (low) (sf), CCC (sf), C (sf), CCC (sf), C (sf) and C (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, Sucursal en España are subject to EU and US regulations only.

Lead Analyst: Maria Lopez, Vice President, European Structured Finance
Rating Committee Chair: Christian Aufsatz, Managing Director, Head of European Structured Finance
Initial Rating Date: 18 June 2019

DBRS Ratings GmbH, Sucursal en España
Calle del Pinar, 5
28006 Madrid
Spain

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
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.

--Rating European Consumer and Commercial Asset-Backed Securitisations
--Rating CLOs Backed by Loans to European SMEs
--Legal Criteria for European Structured Finance Transactions
--Rating CLOs and CDOs of Large Corporate Credit
--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.