DBRS Morningstar Assigns Ratings to IM BCC Cajamar 2 Fondo de Titulización

DBRS Ratings GmbH (DBRS Morningstar) assigned ratings of AA (high) (sf) and CCC (sf) to the Class A notes and the Class B notes (collectively, the Rated Notes), respectively, issued by IM BCC Cajamar 2 Fondo de Titulización (Cajamar 2 or the Issuer), a securitisation fund incorporated under Spanish securitisation law. The transaction is a securitisation of residential mortgage loans originated by Cajamar Caja Rural (Cajamar).

The rating of the Class A notes addresses timely payment of interest and ultimate payment of principal on or before the legal final maturity date in December 2061. The rating on the Class B notes addresses the ultimate payment of interest and principal on or before the final maturity date in December 2061.

The Rated Notes were issued at closing to finance the purchase of a portfolio of first-lien and second-lien mortgages secured over properties located in Spain. The transaction is managed by Intermoney Titulización, S.G.F.T., S.A. (the management company or Intermoney). Cajamar is the servicer of the portfolio.

The transaction benefits from a reserve fund that was funded to EUR 14,500,000 at closing and will be able to provide liquidity support to the Class A notes. Once the Class A notes have been redeemed in full, the reserve fund will also provide liquidity support for the Class B notes.

The Class A notes will benefit from full sequential amortisation, whereas principal on Class B will not be paid until the Class A notes have been redeemed in full. Additionally, the Class A principal will be paid senior to the Class B interest payments in the priority of payments.

DBRS Morningstar was provided with data about the securitised portfolio equal to EUR 739 million as of 21 November 2019, which consisted of 7,875 loans extended to 7,403 borrowers. The portfolio is characterised by loans with a high loan-to-value (LTV) ratio; the weighted-average (WA) current LTV stands at 72.1% with 38.9% having a current LTV greater than 80%. However, the WA indexed current LTV is 71.8% with 36.5% of the loans having an indexed current LTV greater than 80%. Regarding the geographical distribution, the three largest Spanish autonomous regions by outstanding portfolio balance based on the location of the property are Andalusia (35.6%), Valencia (24.5%), and Murcia (15.4%). Of the mortgage loans in the asset portfolio, 8.6% are classified as second-home loans and 3.0% are second liens. Loans representing 7.8% of the portfolio were granted to non-Spanish nationals and 17.0% of loans were granted to self-employed borrowers. As of the 21 November 2019 cutoff date, 3.0% of the mortgage loans were no more than 30 days in arrears and 0.4% were no more than 60 days in arrears.

Cajamar is able to renegotiate the maturity, interest rate type, and margin, as well as principal grace periods on the loans subject to strict criteria. Pursuant to the provisions of the loan servicing agreement, a borrower has the option to change the final maturity date of a loan with a maximum final maturity date being 27 May 2058. When renegotiating the interest rate of the loans, the new conditions have to reflect market interest rates, which are not different from those Cajamar is then applying in the renegotiation or the granting of its own fixed- or variable-rate mortgage loans. The transaction documentation includes triggers for fixed-rate as well as for floating-rate loans, which have to be met when renegotiating the interest rate. Principal grace periods could be renegotiated for a period up to 12 months on the nondefaulted receivables with a limit of 2% of the total amount of the outstanding balance on the day of incorporation. The total amount of the outstanding balance of the receivables amended, including the change of the maturity date, interest rate, margin, and grace period, may not exceed 7.5% of the initial balance of the receivables on the date of incorporation. DBRS Morningstar reflected the renegotiations in its cash flow analysis by extending 7.5% of the portfolio to the maximum maturity date and compressing the loan margins to the applicable margin in line with the renegotiation criteria. As per the representations and warranties, none of the loans included in the portfolio at the issue date had a principal grace period that falls beyond November 2023.

Banco Santander, S.A. (Santander) is the account bank and paying agent for the transaction and will hold the Issuer’s transaction account and reserve fund account. Santander will be replaced as account bank within 30 calendar days if it is downgraded below “A". The DBRS Morningstar long-term senior debt rating of Santander is A (high) and the short-term debt rating is R-1 (middle) with a Stable trend. The long-term COR of Santander is AA (low) as of the date of this press release. The account bank applicable rating is the higher of one notch below the Santander COR and Santander Long Term Senior Debt rating.

Currently, 93.1% of the loans, including the fixed-to-floating loans, pay a floating rate of interest primarily linked to 12-month Euribor. In comparison, the notes pay an interest rate linked to three-month Euribor. DBRS Morningstar considers there is limited basis risk as the collateral mostly pays 12-month Euribor with monthly payments (98.6%) and reset periods of 12 months while the notes pay a fixed rate for the first five years and switch to one-month Euribor in March 2025; additionally, the reserve fund is available to cover interest payments to the Class A notes and to the Class B notes once Class A has been fully redeemed. DBRS Morningstar stressed the interest rates as detailed in its “Interest Rate Stresses for European Structured Finance Transactions” methodology.

DBRS Morningstar based its ratings on its review of the following analytical considerations:
-- The transaction capital structure, form, and sufficiency of available credit enhancement.
-- The credit quality of the mortgage portfolio and the ability of the servicer to perform collection and resolution activities. DBRS Morningstar estimated stress-level probability of default (PD), loss given default (LGD), and expected losses (EL) on the mortgage portfolio. The PD, LGD, and EL are used as inputs into the cash flow tool. The mortgage portfolio was analysed in accordance with DBRS Morningstar’s “European RMBS Insight Methodology” and the “European RMBS Insight: Spanish Addendum”.
-- The transaction’s ability to withstand stressed cash flow assumptions and repay the Class A and Class B notes according to the terms of the transaction documents. The transaction structure was analysed using Intex DealMaker. DBRS Morningstar considered additional sensitivity scenarios of 0% conditional repayment rate (CPR) stress.
-- The DBRS Morningstar Spain sovereign ratings of “A” and R-1 (low) with Positive trends as of the date of this report.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology, and the presence of legal opinions addressing the assignment of the assets to the Issuer.

Notes:
All figures are in euros unless otherwise noted.

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

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

The sources of data and information used for these ratings include Intermoney.

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

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

In respect of the Class A notes, the PD of 29.5% and LGD of 51.2%, corresponding to a AA (high) (sf) stress scenario, were stressed assuming 25% and 50% increase on the PD and LGD:
-- A hypothetical increase of the PD of 25%, ceteris paribus, would lead to a downgrade to A (high) (sf).
-- A hypothetical increase of the PD of 50%, ceteris paribus, would lead to a downgrade to A (low) (sf).
-- A hypothetical increase of the LGD of 25%, ceteris paribus, would lead to a downgrade to A (high) (sf).
-- A hypothetical increase of the LGD of 50%, ceteris paribus, would lead to a downgrade to A (low) (sf).
-- A hypothetical increase of the PD of 25% and LGD by 25%, ceteris paribus, would lead to a downgrade to A (low).
-- A hypothetical increase of the PD of 25% and LGD by 50%, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- A hypothetical increase of the PD of 50% and LGD by 25%, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- A hypothetical increase of the PD of 50% and LGD by 50%, ceteris paribus, would lead to a downgrade to BBB (low) (sf).

In respect of the Class B notes, the PD of 4.9% and LGD of 22.9%, corresponding to a CCC (sf) stress scenario, were stressed assuming 25% and 50% increase on the PD and LGD:
-- A hypothetical increase of the PD of 25%, ceteris paribus, would not have an impact on the current rating.
-- A hypothetical increase of the PD of 50%, ceteris paribus, would not have an impact on the current rating.
-- A hypothetical increase of the LGD of 25%, ceteris paribus, would not have an impact on the current rating.
-- A hypothetical increase of the LGD of 50%, would not have an impact on the current rating.
-- A hypothetical increase of the PD of 25% and LGD by 25%, ceteris paribus, would not have an impact on the current rating.
-- A hypothetical increase of the PD of 25% and LGD by 50%, ceteris paribus, would lead to Class B being downgraded to below CCC (sf).
-- A hypothetical increase of the PD of 50% and LGD by 25%, ceteris paribus, would lead to Class B being downgraded to below CCC (sf).
-- A hypothetical increase of the PD of 50% and LGD by 50%, ceteris paribus, would lead to Class B being downgraded to below 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: Ronja Dahmen, Assistant Vice President, Global Structured Finance
Rating Committee Chair: Christian Aufsatz, Managing Director, Head of European Structured Finance
Initial Rating Date: 19 December 2019

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

--European RMBS Insight: Spanish Addendum
--European RMBS Insight Methodology
--Legal Criteria for European Structured Finance Transactions
--Derivative Criteria for European Structured Finance Transactions
--Interest Rate Stresses 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].