DBRS Morningstar Confirms Ratings on the Notes Issued by Caixabank Consumo 2, FT

DBRS Ratings GmbH (DBRS Morningstar) confirmed its ratings on the Series A and Series B notes issued by Caixabank Consumo 2, FT (the Issuer) at A (sf) and BBB (high) (sf), respectively.

The rating on the Series A Notes addresses the timely payment of interest and the ultimate repayment of principal by the final legal maturity date in April 2060. The rating on the Series B Notes addresses the ultimate payment of interest and repayment of principal by the final legal maturity date.

The confirmations follow an annual review of the transaction and are based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies, defaults, and losses as of the July 2020 payment date;
-- Probability of default (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;
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

The Issuer is a static securitisation collateralised by a portfolio of consumer loans granted by CaixaBank, S.A. (Caixabank) to individuals in Spain. The portfolio consists of unsecured consumer loans and receivables secured by residential property, including standard mortgages (Préstamos Hipotecarios) as well as drawdowns from revolving credit lines (Disposiciones de Crédito Hipotecario). The transaction closed in June 2016.

At closing, the EUR 1.3 billion portfolio consisted mostly of unsecured consumer loans (74.4% of the pool balance), with standard mortgage loans accounting for 16.5% and revolving credit lines 9.1%. As of the July 2020 payment date, as a result of the varying amortisation profiles of the portfolio receivables, the share of unsecured consumer loans decreased to 26.1% while mortgage loans increased to 48.3% and credit lines increased to 25.6%.

PORTFOLIO PERFORMANCE
As of the July 2020 payment date, loans that were 30- to 60-days delinquent represented 0.3% of the outstanding collateral balance and 60- to 90-day delinquencies represented 0.1%, while delinquencies greater than 90 days represented 4.5%. Gross cumulative defaults amounted to 2.2% of the original portfolio balance, 14.3% of which has been recovered to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and updated its PD and LGD assumptions to 5.5% and 60.7%, respectively, for the unsecured consumer loans in the portfolio, and to 5.7% and 16.1%, respectively, for the mortgage loans in the portfolio.

CREDIT ENHANCEMENT
The subordination of the Series B Notes and the cash reserve provides credit enhancement to the Series A Notes, while the sole source of credit enhancement to the Series B Notes is the cash reserve, following the full repayment of the Series A Notes. As of the July 2020 payment date, credit enhancement to the Series A Notes increased to 69.8% from 47.0% at the time of the last annual review 12 months ago; credit enhancement to the Series B Notes increased to 20.0% from 13.4%.

The transaction benefits from an amortising reserve fund available to cover senior expenses and all payments due on the senior-most class of notes outstanding. This reserve was funded to EUR 52.0 million at closing through a subordinated loan granted by CaixaBank and has a target level equal to the lower of its original balance and 8.0% of the outstanding principal balance of the Series A and Series B notes, subject to a floor of EUR 26.0 million. The reserve could have started amortising as of the July 2018 payment date, but because delinquencies greater than 90 days exceeded 1.5% of the portfolio balance, amortisation did not occur. As this performance trigger continues to be breached, the reserve remains at its original balance of EUR 52.0 million.

CaixaBank acts as the account bank for the transaction. Based on the account bank reference rating of CaixaBank at A (high), which is one notch below the DBRS Morningstar Long-Term Critical Obligations Rating of AA (low), the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

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 ABS and 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. For this transaction, DBRS Morningstar increased the expected default rate for self-employed borrowers, assumed a moderate decline in residential property prices, and conducted additional sensitivity analysis to determine that the transaction benefits from sufficient liquidity support to withstand high levels of payment holidays or payment moratoriums in the portfolio.

On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 10 September 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/366542/global-macroeconomic-scenarios-september-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

On 5 May 2020 and 8 May 2020, DBRS Morningstar published commentaries outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated RMBS and ABS transactions in Europe, respectively. For more details, please see: https://www.dbrsmorningstar.com/research/360599/european-rmbs-transactions-risk-exposure-to-coronavirus-covid-19-effect, https://www.dbrsmorningstar.com/research/360734/european-abs-transactions-risk-exposure-to-coronavirus-covid-19-effect, and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.

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.

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 transaction in accordance with the principal methodology.

A review of the transaction legal documents was not conducted as the legal 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 at: https://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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include investor reports provided by CaixaBank Titulización, S.G.F.T., S.A. (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 ratings, 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.

The last rating action on this transaction took place on 2 October 2019, when DBRS Morningstar confirmed the ratings of the Series A and Series B notes at A (sf) and BBB (high) (sf), respectively.

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

To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the ratings (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.
-- The base case PD and LGD of the current pool of mortgage receivables are 5.7% and 16.1%, respectively. The base case PD and LGD of the current pool of unsecured consumer loan receivables are 5.5% and 60.7%, 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 would be expected to remain at A (sf), ceteris paribus. If the PD increases by 50%, the rating of the Series A Notes would be expected to remain at A (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating of the Series A Notes would be expected to remain at A (sf).

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

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

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see:
https://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: Daniel Rakhamimov, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 20 June 2016

DBRS Ratings GmbH
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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 this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (22 April 2020),
https://www.dbrsmorningstar.com/research/359884/master-european-structured-finance-surveillance-methodology.
-- Rating European Consumer and Commercial Asset-Backed Securitisations (3 September 2020), https://www.dbrsmorningstar.com/research/366294/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Rating European Structured Finance Transactions Methodology (21 July 2020),
https://www.dbrsmorningstar.com/research/364305/rating-european-structured-finance-transactions-methodology.
-- European RMBS Insight Methodology (2 April 2020) and European RMBS Insight Model v4.3.1.0, https://www.dbrsmorningstar.com/research/359192/european-rmbs-insight-methodology.
-- European RMBS Insight: Spanish Addendum (26 August 2020),
https://www.dbrsmorningstar.com/research/366107/european-rmbs-insight-spanish-addendum.
-- 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.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (28 September 2020), https://www.dbrsmorningstar.com/research/367292/interest-rate-stresses-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 https://www.dbrsmorningstar.com/research/278375.

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