DBRS Morningstar Confirms Ratings on Four Rural Hipotecario Spanish RMBS Transactions

DBRS Ratings GmbH (DBRS Morningstar) confirmed the ratings on the following bonds issued by four Spanish residential mortgage-backed securities (RMBS) transactions originated and serviced by Spanish rural savings banks:

Rural Hipotecario X, Fondo de Titulización de Activos (RH X):
-- Series A at AA (high) (sf)
-- Series B at A (high) (sf)
-- Series C at BBB (high) (sf)

Rural Hipotecario XI, Fondo de Titulización de Activos (RH XI):
-- Series A at AA (sf)

Rural Hipotecario XII, Fondo de Titulización de Activos (RH XII):
-- Series A at AA (high) (sf)

Rural Hipotecario XIV, Fondo de Titulización de Activos (RH XIV):
-- Series A at AA (high) (sf)
-- Series B at A (high) (sf)

The ratings on the Series A notes of all four transactions address the timely payment of interest and the ultimate payment of principal on or before the legal final maturity dates. The ratings on the RH X Series B and Series C notes and RH XIV Series B notes address the ultimate payment of interest and principal on or before the respective legal final maturity dates.

The confirmations follow an annual review of the transactions and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses.
-- Portfolio default rate (PD), loss given default (LGD). and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the notes to cover the expected losses at their respective rating levels.

PORTFOLIO PERFORMANCE
-- For RH X, as of 25 February 2020, the cumulative default ratio was 3.7%, the 30+ and 90+ delinquency ratios were 3.4% and 1.0%, respectively.
-- For RH XI, as of 25 March 2020, the cumulative default ratio was 3.5%, the 30+ and 90+ delinquency ratios were 3.3% and 0.8%, respectively.
-- For RH XII, as of 22 March 2020, the cumulative default ratio was 2.5%, the 30+ and 90+ delinquency ratios were 3.2% and 0.8%, respectively.
-- For RH XIV, as of 30 February 2020, the cumulative default ratio was 0.5%, the 30+ and 90+ delinquency ratios were 0.6% and 0.2%, respectively.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of the receivables in each transaction and updated its base case PD and LGD assumptions as follows:
-- For RH X, DBRS Morningstar updated its base case PD and LGD assumptions to 4.0% and 15.7%, respectively.
-- For RH XI, DBRS Morningstar updated its base case PD and LGD assumptions to 4.2% and 20.4%, respectively.
-- For RH XII, DBRS Morningstar updated its base case PD and LGD assumptions to 4.2% and 18.9%, respectively.
-- For RH XIV, DBRS Morningstar updated its base case PD and LGD assumptions to 3.4% and 21.5%, respectively.

CREDIT ENHANCEMENT AND RESERVE FUND
For each transaction, credit enhancement to the rated notes is provided by the subordination of junior series and a reserve fund.
-- For RH X, Series A credit enhancement was 14.3%, Series B credit enhancement was 10.3%, and Series C credit enhancement was 4.6%, as of the February 2020 payment date.
-- For RH XI, Series A credit enhancement was at 14.5%, as of the March 2020 payment date.
-- For RH XII, Series A credit enhancement was at 20.0%, as of the March 2020 payment date.
-- For RH XIV, Series A credit enhancement was at 32.8%, and Series B credit enhancement was at 11.2%, as of the February 2020 payment date.

Société Générale S.A., Sucursal en España acts as the account bank for the four transactions. Based on the DBRS Morningstar private rating of Société Générale S.A., Sucursal en España, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transactions structures, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the Series A notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

Banco Cooperativo Español S.A. (Banco Cooperativo) acts as the swap counterparty for RH X, RH XI and RH XII. DBRS Morningstar’s Long-Term Issuer Rating of Banco Cooperativo at BBB (high) does not meet the first rating threshold given the current ratings assigned to the senior notes of RH X and RH XII, as described in DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology. As a result, DBRS Morningstar assumed that the basis risk in these transactions is unhedged for the purpose of the cash flow analysis. DBRS Morningstar has assumed an interest rate basis risk associated with the mismatch between the interest rates on the assets (the majority of the loans pay interest linked to 12-months Euribor) and the interest rate paid on the notes (linked to three-months Euribor) using its “Interest Rate Stresses for European Structured Finance Transactions” methodology.

DBRS Morningstar analysed the transactions’ structures in Intex.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many RMBS transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus.

On 16 April 2020, the DBRS Morningstar Sovereign group published its outlook on the impact to key economic indicators for the 2020-22 time frame. For details see the following commentaries: https://www.dbrsmorningstar.com/research/359679/global-macroeconomic-scenarios-implications-for-credit-ratings and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information on DBRS Morningstar considerations for European RMBS transactions and Coronavirus Disease (COVID-19), please see the following commentary: https://www.dbrsmorningstar.com/research/360599.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (22 April 2020). DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transactions in accordance with the principal methodology.

A review of the transactions’ legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

Other methodologies referenced in these transactions are listed at the end of this press release. These may be found at: http://www.dbrsmorningstar.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.dbrsmorningstar.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include performance reports provided by Europea de Titulización, S.A., SGFT, the Management Company, and loan-level data provided by the European DataWarehouse GmbH.

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

At the time of the initial rating, DBRS Morningstar was not supplied with third-party assessments for any transaction. 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.

The last rating action on all four transactions took place on 31 May 2019, when DBRS Morningstar confirmed and upgraded ratings on the transactions.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies is available at www.dbrsmorningstar.com.

To assess the impact of changing the transactions’ parameters on the rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the rating (the Base Case):

-- DBRS Morningstar expected a lifetime base case PD and LGD for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.

-- For RH X, the base case PD and LGD assumptions for the collateral pool are 4.0% and 15.7%, respectively. At the AA (high) (sf) rating level, the PD and LGD are 20.0% and 35.9%, respectively. At the A (high) (sf) rating level, the PD and LGD are 15.75% and 30.4%, respectively. At the BBB (high) (sf) rating level, the PD and LGD are 11.5% and 21.8%, respectively.
-- For RH XI, the base case PD and LGD assumptions for the collateral pool are 4.2% and 20.4%, respectively. At the AA (sf) rating level, the PD and LGD are 19.2% and 38.5%, respectively.
-- For RH XII, the base case PD and LGD assumptions for the collateral pool are 4.2% and 18.9%, respectively. At the AA (high) (sf) rating level, the PD and LGD are 20.4% and 39.9%, respectively.
-- For RH XIV, the base case PD and LGD assumptions for the collateral pool are 3.4% and 21.5%, respectively. At the AA (high) (sf) rating level, the PD and LGD are 18.3% and 36.3%, respectively. At the A (high) (sf) rating level, the PD and LGD are 14.2% and 32.2%, respectively.
-- The risk sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating of the Series A notes of RH X would be expected to fall to AA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Series A notes would be expected to fall to AA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Series A notes would be expected to fall to A (sf).

RH X Series A Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (sf)

RH X Series B Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)

RH X Series C Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD, expected rating of BBB (high) (sf)
-- 50% increase in PD, expected rating of BBB (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)

RH XI Series A Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of AA (low) (sf)
-- 50% increase in PD, expected rating of A (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)

RH XII Series A Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)

RH XIV Series A Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)

RH XIV Series B Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of A (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (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 U.S. regulations only.

Lead Analyst: Shalva Beshia, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President

Initial Rating Date of RH X: 8 February 2013
Initial Rating Date of RH XI: 8 February 2013
Initial Rating Date of RH XII: 8 February 2013
Initial Rating Date of RH XIV: 15 July 2013

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500

Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

The rating methodologies used in the analysis of these transactions can be found at: http://www.dbrsmorningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (22 April 2020), https://www.dbrsmorningstar.com/research/354616/master-european-structured-finance-surveillance-methodology
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020), https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers
-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2019),
https://www.dbrsmorningstar.com/research/351557/interest-rate-stresses-for-european-structured-finance-transactions
-- European RMBS Insight Methodology (2 April 2020) and European RMBS Insight Model v 4.2.1.2., https://www.dbrsmorningstar.com/research/359192/european-rmbs-insight-methodology
-- European RMBS Insight: Spanish Addendum (10 July 2019), https://www.dbrsmorningstar.com/research/347838/european-rmbs-insight-spanish-addendum
-- Derivative Criteria for European Structured Finance Transactions (26 September 2019),
https://www.dbrsmorningstar.com/research/350907/derivative-criteria-for-european-structured-finance-transactions

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at http://www.dbrsmorningstar.com/research/278375.

For more information on these credits or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].