DBRS Morningstar Finalises Provisional Ratings of Miravet 2019-1

DBRS Ratings GmbH (DBRS Morningstar) finalised the following provisional ratings previously assigned to the notes issued by Miravet 2019-1 (the Issuer or the Fund):

-- AAA (sf) to the Class A Notes
-- A (high) (sf) to the Class B Notes
-- BBB (high) (sf) to the Class C Notes
-- BB (high) (sf) to the Class D Notes
-- BB (sf) to the Class E Notes (collectively with the Class A, B, C, and D Notes, the Rated Notes)

DBRS Morningstar does not rate the Class X Notes and Class Z Notes. The rating of the Class A Notes addresses the timely payment of interest and ultimate payment of principal by the final legal maturity date in 2065. The ratings of the Class B Notes, Class C Notes, Class D Notes, and Class E Notes address the ultimate payment of interest and principal. The Class A Notes and Class X Notes also benefit from an amortising liquidity reserve fund in case of interest shortfall, which were funded at closing with the proceeds from the Class Z Notes and the priority of payments thereafter. It is equal to 3.5% of the outstanding balance of the Class A Notes and is floored at 1% of the Class A Notes’ initial balance. The excess amounts from the liquidity reserve fund formed part of the available funds and may provide additional credit support.

The ratings on Class B, C and E notes have improved following the reduction in greater than equal to ninety days delinquent loans from 6.1% to 5.7% and slight drop in indexed current loan to value from 69.1% to 68.8% since the provisional rating.

Proceeds from the issuance of the Rated Notes and part of the proceeds from the Class Z Notes purchased reperforming Spanish residential mortgage loans represented by mortgage participations and mortgage transfer certificates (mortgage certificates). The mortgage loans were originated by Catalunya Banc, S.A. (CX), Caixa d’Estalvis de Catalunya, Caixa d’Estalvis de Tarragona, and Caixa d’Estalvis de Manresa. The latter three entities were merged into Caixa d’Estalvis de Catalunya, Tarragona i Manresa, which was subsequently transferred to Catalunya Banc, S.A. by virtue of a spin-off, on 27 September 2011. During 2011 and 2012, CX received a capital investment from the Fund for Orderly Bank Restructuring (FROB), effectively nationalising the bank.

As part of its divestment in CX, the FROB sold a portfolio of loans that was transferred to a securitisation fund, FTA 2015, Fondo de Titulizacion de Activos (the 2015 Fund), via the issuance of mortgage participation and mortgage transfer certificates, which represent the legal and economic interest in the mortgage loans. Following the sale of the mortgage loans in 2015, Banco Bilbao Vizcaya Argentaria, S.A. (BBVA, which DBRS Morningstar rates A (high)/R-1 (middle) with Stable trends) acquired CX on 24 April 2015. Subsequently, CX was absorbed and merged with BBVA. BBVA will act as Collection Account Bank and Master Servicer with servicing operations delegated to Anticipa Real Estate, S.L.U. (Anticipa or the Servicer).

As of 31 October 2019, the current balance of the mortgage portfolio was EUR 352,129,123, with 77.0% restructured loans and 5.3% 90+ days past due delinquencies. The seasoning of the portfolio is 11.8 years. The portfolio currently has approximately 4.7% loans with prior ranks in the portfolio and approximately 1.5% loans with unknown prior ranks. The weighted-average (WA) indexed current loan-to-value (LTV) of the mortgage portfolio is 68.8%, calculated based on loans with known liens as per DBRS Morningstar’s methodology. DBRS Morningstar has assessed the historical performance of the mortgage loans and factored restructuring arrangements into its analysis by selecting an underwriting score of 4 in its European RMBS Insight Model.

The portfolio is largely concentrated in the autonomous region of Catalonia (72.1% by loan amount). CX, as the originator, was headquartered in Barcelona and focused its lending strategy in Catalonia. The concentration in Catalonia exposes the transaction to risks relating to house-price fluctuations, poor economic performance and changes in regional laws.

Multicredit loans represent 51.1% of the pool and permit the borrower to make additional drawdowns of up to EUR 73.3 million. The borrower may not draw down in excess of the amounts stated in the mortgage agreement. Borrower eligibility for additional drawdowns is subject to key conditions. Generally, a borrower must not be in default and restrictions are also placed on the debt-to-income ratios. Once eligibility has been established, drawdown is subject to additional criteria such as caps on the maximum drawdown amounts, maturity restrictions and LTV caps. Because of the historically low drawdowns seen in the previously rated SRF transactions and strict drawdown conditions in this transaction, DBRS Morningstar did not consider drawdowns in its analysis. However, it stressed the servicing fees to assess the liquidity stress on the available funds.

The transaction is exposed to unhedged basis risk with the assets linked to 12-month Euribor (83.7%), Mumbai Interbank Offer Rate (0.2%), and IRPH (15.7%). The remaining portion (0.4%) pays a fixed rate of interest. The notes are linked to three-month Euribor. The WA interest rate of the portfolio is calculated at 1.4% with the WA margin equal to 1.4%. Moreover, the Servicer can renegotiate the loan terms within the portfolio aside from the good servicing practices. The loan modifications are subject to a limit of 5% of the initial balance of the portfolio. The margin can be reduced to 50 basis points (bps) for loans linked to Euribor and -40 bps for loans linked to IRPH. The maturity of the loan cannot be extended beyond 48 months before the maximum maturity date of the mortgage loans (2060).

As of 1 July 2016, interest rate floors were no longer applied on loans from borrowers classified as consumers. There are about 62 loans with interest rate floors, amounting to 0.6% of the total portfolio outstanding balance.

BBVA is in place as the Master Servicer and Collection Account Bank. Anticipa, as the servicer of the mortgage loans, will act in the name of BBVA on behalf of the Fund. Pepper Assets Services, S.L.U. (Pepper), Spain will act as a long-term servicer.

The servicer is expected to change at or post-closing from Anticipa to Pepper upon BBVA’s approval. If BBVA approves but there is a delay in the servicing transfer after closing, the servicing fees step up depending on the length of delay. However, if BBVA does not approve the transfer, Anticipa will continue servicing the portfolio with a step-up in servicing fees after five years; this step-up payment ranks junior to the repayment of Rated Notes.

BBVA will deposit amounts received that arise from the mortgage loans with the Issuer Account Bank within one business day. Elavon Financial Services DAC (Elavon) is the Issuer Account Bank and Paying Agent for the transaction. DBRS Morningstar privately rates Elavon and has concluded that Elavon meets its minimum criteria to act in such capacity. The transaction contains downgrade provisions relating to the account bank whereby, if DBRS Morningstar downgrades Elavon below “A”, the Issuer will replace the account bank. The downgrade provision is consistent with DBRS Morningstar’s criteria for the AAA (sf) rating assigned to the Class A Notes in this transaction.

DBRS Morningstar based its ratings on a review of the following analytical considerations:
-- The transaction capital structure and form and sufficiency of available credit enhancement.
Credit enhancement on the Rated Notes is estimated as overcollateralisation provided by the portfolio at 31.1%, 19.5%, 15.3%, 13.9% and 12.6%, respectively.
-- The credit quality of the provisional mortgage loan portfolio and the ability of the servicer to perform collection activities. DBRS Morningstar calculated probability of default (PD), loss given default (LGD), and expected loss outputs on the mortgage loan portfolio.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay the Rated Notes according to the terms of the transaction documents. The transaction cash flows were analysed using PD rates and LGD outputs provided by the European RMBS Insight Model.
-- The DBRS Morningstar sovereign ratings of the Kingdom of Spain at “A” and R-1 (low) with Positive trends as of the date of this press release.
-- The consistency of the transaction legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology and, subject to the comfort drawn on the previous portfolio sale from the redacted versions of the Sale and Purchase agreements (SPA).

Notes:
All figures are in euros unless otherwise noted.

The finalisation of the provisional ratings is subject to the finalisation of transaction documents.

The Spanish legal opinions received by DBRS Morningstar address the transfer of the mortgage certificates from the Seller to the Issuer but do not address the prior sale of mortgage certificates from the SRF Sellers to Odiel Holdings and subsequently Odiel Holdings to the Seller. Instead, DBRS Morningstar was provided with redacted versions of the SPA for the prior transactions. DBRS Morningstar draws comfort about the true sale in those prior transactions from a review of these SPAs.

The principal methodologies applicable to the ratings are: “European RMBS Insight Methodology” and “European RMBS Insight: Spanish Addendum”.

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

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 Global Methodology for Rating Sovereign Governments methodology at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include Anticipa and its representatives.

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

DBRS Morningstar was not supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS Morningstar 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. These are the first DBRS Morningstar ratings on this financial instrument.

Information regarding DBRS Morningstar 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 Morningstar considered the following stress scenarios, as compared to the parameters used to determine the ratings (the Base Case):

-- In respect of the Class A Notes, a PD of 48.4% and LGD of 41.2%, corresponding to the AAA (sf) rating scenario, was stressed assuming a 25.0% and 50.0% increase in the PD and LGD.
-- In respect of the Class B Notes, a PD of 40.5% and LGD of 33.9%, corresponding to the A (high) (sf) rating scenario, was stressed assuming a 25.0% and 50.0% increase in the PD and LGD.
-- In respect of the Class C Notes, a PD of 33.9% and LGD of 26.2%, corresponding to the BBB (high) (sf) rating scenario, was stressed assuming a 25.0% and 50.0% increase in the PD and LGD.
-- In respect of the Class D Notes, a PD of 26.0% and LGD of 24.1%, corresponding to the BB (high) (sf) rating scenario, was stressed assuming a 25.0% and 50.0% increase in the PD and LGD.
-- In respect of the Class E Notes, a PD of 24.7% and LGD of 23.4%, corresponding to the BB (sf) rating scenario, was stressed assuming a 25.0% and 50.0% increase in the PD and LGD.

DBRS Morningstar concludes the following sensitivity analysis on the Rated Notes:

Risk sensitivity when the PD is stressed by 25.0%:
-- The Class A Notes rating is AA (high) (sf)
-- The Class B Notes rating is BBB (high) (sf)
-- The Class C Notes rating is BB (high) (sf)
-- The Class D Notes rating is BB (high) (sf)
-- The Class E Notes rating is B (high) (sf)

Risk sensitivity when the LGD is stressed by 25.0%:
-- The Class A Notes rating is AAA (sf)
-- The Class B Notes rating is BBB (high) (sf)
-- The Class C Notes rating is BBB (low) (sf)
-- The Class D Notes rating is BB (high) (sf)
-- The Class E Notes rating is B (high) (sf)

Risk sensitivity when the PD is stressed by 50.0%:
-- The Class A Notes rating is A (high) (sf)
-- The Class B Notes rating is BBB (sf)
-- The Class C Notes rating is BB (high) (sf)
-- The Class D Notes rating is B (high) (sf)
-- The Class E Notes rating is B (sf)

Risk sensitivity when the LGD is stressed by 50.0%:
-- The Class A Notes rating is AA (high) (sf)
-- The Class B Notes rating is BBB (high) (sf)
-- The Class C Notes rating is BB (high) (sf)
-- The Class D Notes rating is BB (sf)
-- The Class E Notes rating is B (high) (sf)

Risk sensitivity when the PD is stressed by 25.0% and LGD is stressed by 25.0%:
-- The Class A Notes rating is AA (low) (sf)
-- The Class B Notes rating is BBB (high) (sf)
-- The Class C Notes rating is BB (high) (sf)
-- The Class D Notes rating is BB (low) (sf)
-- The Class E Notes rating is B (sf)

Risk sensitivity when the PD is stressed by 50.0% and LGD is stressed by 25.0%:
-- The Class A Notes rating is A (sf)
-- The Class B Notes rating is BB (high) (sf)
-- The Class C Notes rating is BB (low) (sf)
-- The Class D Notes rating is B (high) (sf)
-- The Class E Notes rating is B (low) (sf)

Risk sensitivity when the PD is stressed by 25.0% and LGD is stressed by 50.0%:
-- The Class A Notes rating is A (high) (sf)
-- The Class B Notes rating is BBB (low) (sf)
-- The Class C Notes rating is BB (low) (sf)
-- The Class D Notes rating is B (high) (sf)
-- The Class E Notes rating is B (low) (sf)

Risk sensitivity when the PD is stressed by 50.0% and LGD is stressed by 50.0%:
-- The Class A Notes rating is BBB (high) (sf)
-- The Class B Notes rating is BB (high) (sf)
-- The Class C Notes rating is B (high) (sf)
-- The Class D Notes rating is B (low) (sf)
-- The Class E Notes rating is CCC (sf)

For further information on DBRS Morningstar 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: Hrishikesh Oturkar, Senior Financial Analyst
Rating Committee Chair: Ketan Thaker, Senior Vice President, Head of European RMBS and Covered Bonds
Initial Rating Date: 13 December 2019

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.

-- European RMBS Insight Methodology
-- European RMBS Insight: Spanish Addendum
-- Legal Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators

A description of how DBRS Morningstar 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 [email protected].