DBRS Morningstar Finalises Provisional Ratings on CaixaBank PYMES 12, FT

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional ratings on the following series of notes issued by CaixaBank PYMES 12, FT (the Issuer):

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

The transaction is a cash flow securitisation collateralised by a portfolio of secured and unsecured loans originated by CaixaBank, S.A. (CaixaBank or the Originator; rated “A” with a Stable trend by DBRS Morningstar) to corporates, small and medium-size enterprises (SME), and self-employed individuals based in Spain. As of 20 October 2020, the transaction’s provisional portfolio included 31,024 loans to 28,623 obligor groups, totalling EUR 2.70 billion. At closing, the Originator selected the final portfolio of EUR 2.55 billion from the provisional pool.

The rating of the Series A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal maturity date in September 2062. The rating of the Series B Notes addresses the ultimate payment of interest and principal on or before the legal maturity date.

Interest and principal payments on the Notes will be made quarterly on the 16th of March, June, September, and December, with the first payment date on 16 March 2021. The Notes pay a fixed interest rate equal to 0.30% and 0.50% for the Series A Notes and Series B Notes, respectively.

The provisional pool was well diversified across industries and in terms of borrowers. There was some concentration of borrowers in Catalonia (26.8% of the portfolio balance), which is to be expected given that Catalonia is the Originator’s home region. The largest and 10 and 20 obligor groups represented 1.2%, 6.5%, and 9.4% of the portfolio balance, respectively. The top three industry sectors according to DBRS Morningstar’s industry definition are Building and Development, Farming and Agriculture, and Food Products, representing 14.4%, 10.7%, and 10.3% of the portfolio outstanding balance, respectively.

The Series A Notes benefit from 19.0% credit enhancement through subordination of the Series B Notes and the presence of a reserve fund. The Series B Notes benefit from 5.0% credit enhancement provided by the reserve fund. The reserve fund was be funded through a subordinated loan and is available to cover senior fees and interest and principal on the Series A Notes and, once the Series A Notes are fully amortised, interest and principal on the Series B Notes. The cash reserve will amortise subject to the target level being equal to 5.0% of the outstanding balance of the Series A and Series B notes. The Series B Notes interest and principal payments are subordinated to the Series A Notes payments.

The ratings are based on DBRS Morningstar’s “Rating CLOs Backed by Loans to European SMEs” methodology and the following analytical considerations:
-- The probability of default (PD) for the portfolio was determined using the historical performance information supplied. DBRS Morningstar compared the internal rating distribution of the portfolio with the internal rating distribution of the loan book and concluded that the portfolio was of marginally better quality than the overall loan book. DBRS Morningstar assumed an annualised PD of 0.78% for secured loans to SME and self-employed individuals, 1.47% for unsecured loans to SME and self-employed individuals, 2.11% for secured corporate loans, 1.86% for unsecured corporate loans, and 1.95% for preapproved loans. Additional adjustments were applied in the context of the current Coronavirus Disease (COVID-19) pandemic.
-- The assumed weighted-average life (WAL) of the portfolio is 3.3 years.
-- The PD and WAL were used in the DBRS Morningstar Diversity Model to generate the hurdle rates for the respective ratings.
-- The recovery rate was determined by considering the market value declines for Spain, the security level, and the type of collateral. For the Series A Notes, DBRS Morningstar applied a 48.0% recovery rate for secured loans and a 15.8% recovery rate for unsecured loans. For the Series B Notes, DBRS Morningstar applied a 70.3% recovery rate for secured loans, and a 21.5% recovery rate for unsecured loans.
-- The break-even rates for the interest rate stresses and default timings were determined using the DBRS Morningstar cash flow tool.

The transaction structure was analysed in a proprietary excel tool, considering the default rates at which the Notes did not return all specified cash flows.

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 increase in the coming months for many SME 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 obligors in certain industries based on their perceived exposure to the adverse disruptions of the coronavirus.

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.dçbrsmorningstar.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.

For more information on DBRS Morningstar considerations for European Structured Credit transactions and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar commentary: https://www.dbrsmorningstar.com/research/361098.

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/357883.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is “Rating CLOs Backed by Loans to European SMEs” (30 September 2020).

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 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 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 the Originator, the Issuer, and CaixaBank Titulización S.G.F.T., S.A.U

DBRS Morningstar received static default vintage data (more than 90 days in arrears) and static recoveries vintage data from the period Q1 2008 to Q2 2020. The data was split between secured and unsecured loans granted to self-employed individuals and SMEs, preapproved loans, and secured and unsecured loans granted to corporates. DBRS Morningstar also received internal PD distributions for the CaixaBank SME and corporate loan books.

In addition, portfolio loan-by-loan data and amortisation profile were also provided as at 20 October 2020.

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.

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

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on 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.

--PD Used: Base case PD of 0.78% for secured loans to SME and self-employed individuals, 1.47% for unsecured loans to SME and self-employed individuals , 2.11% for secured corporate loans, 1.86% for unsecured corporate loans and 1.95% for preapproved loans, a 10.0% and 20.0% increase on the base case PD.
-- Recovery Rates Used: Base case recovery rate of 19.51% at the AA (low) (sf) and 27.19% at the B (low) (sf) stress levels, a 10% and 20% decrease in the base case recovery rates, respectively.

DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20% would lead to a downgrade of the Series A Notes to A (high) (sf) and would not have impact on the Series B Notes rating. A hypothetical decrease of the base case recovery rate by 20%, ceteris paribus, would not have an impact on the Series A Notes rating or the Series B Notes rating. A scenario combining both an increase in the base case PD by 10% and a decrease in the base case recovery rate by 10% would lead to a downgrade of the Series A Notes to A (high) (sf) and would not have an impact on the Series B Notes rating.

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, Sucursal en España are subject to EU and U.S. regulations only.

Lead Analyst: María López, Senior Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 12 November 2020

DBRS Ratings GmbH, Sucursal en España
Calle del Pinar, 5
28006 Madrid
Spain
Tel. +34 (91) 903 6500

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 this transaction can be found at: http://www.dbrsmorningstar.com/about/methodologies.

--Rating CLOs Backed by Loans to European SMEs (30 September 2020) and SME Diversity Model v2.4.1.0, https://www.dbrsmorningstar.com/research/367642/rating-clos-backed-by-loans-to-european-smes
--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
--Rating CLOs and CDOs of Large Corporate Credit (21 July 2020),
https://www.dbrsmorningstar.com/research/364310/rating-clos-and-cdos-of-large-corporate-credit
--Cash Flow Assumptions for Corporate Credit Securitizations (21 July 2020),
https://www.dbrsmorningstar.com/research/364311/cash-flow-assumptions-for-corporate-credit-securitizations
--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
--Operational Risk Assessment for European Structured Finance Originators (30 September 2020), https://www.dbrsmorningstar.com/research/367603/operational-risk-assessment-for-european-structured-finance-originators
--European RMBS Insight Methodology (2 April 2020), 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

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

This press release was amended on 7 December 2020 to include a model used alongside the primary methodology.