Press Release

DBRS Morningstar Finalises Provisional Ratings of IM BCC Cajamar PYME 3 FT

Structured Credit

April 08, 2021

DBRS Ratings GmbH (DBRS Morningstar) finalised the provisional ratings on the following series of notes issued by IM BCC Cajamar PYME 3 FT (the Issuer):

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

The transaction is a cash flow securitisation collateralised by a portfolio of secured and unsecured loans originated by Cajamar Caja Rural S.C.C. (Cajamar or the Originator; rated BB (high) with a Negative trend by DBRS Morningstar) to small and medium-size enterprises (SME) and self-employed individuals based in Spain. As of 3 March 2021, the transaction’s provisional portfolio included 36,491 loans to 29,099 obligor groups, totalling EUR 1.5 billion. At closing, the Originator selected the final portfolio of EUR 1.0 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 June 2057. 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 monthly on the 22nd of each month, with the first payment date on 22 June 2021. The Notes pay a fixed interest rate equal to 0.5% until 22 November 2022. After that, the Notes will pay an interest rate of one-month Euribor plus a 0.20% and 0.30% margin for the Series A and Series B notes, respectively.

The provisional pool exhibited low borrower concentration. The largest obligor group represents 0.95% of the portfolio balance and the top ten and top twenty borrowers represent 3.2% and 4.9% of the outstanding pool balance, respectively; at closing, the largest obligor group cannot represent more than 0.5% of the portfolio balance. As per DBRS Morningstar’s Industry classification, the pool exhibits a high industry concentration in Farming/Agriculture, which represents 34.9% of the pool balance, followed by Building and Development and Business Equipment and Services at 8.6% and 7.7%, respectively. There is a high concentration of borrowers in Andalusia (35.5% of the portfolio balance), which is expected given that Andalusia is the home region of the Originator. Additionally, 9.5% of the outstanding balance of the provisional portfolio corresponded to refinance loans, which have a higher default expectation. At closing, the maximum percentage of refinance loans transferred to the Issuer cannot exceed 5.0% of the portfolio balance.

The Series A Notes benefit from 26.0% credit enhancement through subordination of the Series B Notes and the presence of a reserve fund. The Series B Notes benefit from 3.0% credit enhancement provided by the reserve fund. The reserve fund was 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 reserve fund will not amortise through the life of the transaction. The Series B Notes interest and principal payments are subordinated to the Series A Notes payments.

The transaction does not include any mechanisms to address commingling risk. As such, DBRS Morningstar’s analysis includes a stress equivalent to the interruption of interest and principal proceeds for a period of six months, assuming that senior expenses and interest on the Series A Notes would be paid from the Cash Reserve for this period.

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. The historical data has been provided separately for refinance loans and “regular” loans. DBRS Morningstar adjusted the annual PD for the loans of the portfolio that have lower internal ratings (i.e., ratings 1 and 2) considering a PD of 99.0% and 21.0% for loans with an internal rating of 1 and 2, respectively. For the remaining portfolio, DBRS Morningstar assumed an annual PD of 1.8% for the standard loans and an annual PD of 8.1% for refinance loans based on the historical performance data provided. DBRS Morningstar applied additional adjustments to expected performance in the context of the current Coronavirus Disease (COVID-19) pandemic.
-- The assumed weighted-average life (WAL) of the portfolio is 3.7 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 security level, the type of collateral and, if applicable, the respective market value decline rates for Spain. For the Series A Notes, DBRS Morningstar applied a 50.8% recovery rate for secured loans and a 15.8% recovery rate for unsecured loans. For the Series B Notes, DBRS Morningstar applied a 75.7% 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 proprietary cash flow tool.

The transaction structure was analysed in a proprietary Excel-based cash flow engine, 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 17 March 2021. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/375376/global-macroeconomic-scenarios-march-2021-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 can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at: https://www.dbrsmorningstar.com/research/373262.

On 22 March 2023, DBRS Morningstar amended the above press release to remove the trend from this rating action as it does not apply.

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.

An asset and a cash flow analysis were both conducted.

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 Intermoney Titulización S.G.F.T., S.A.

DBRS Morningstar received static default vintage data (more than 90 days in arrears) and static recoveries vintage data from the period Q1 2016 to Q4 2021. The data was split between secured and unsecured loans granted to self-employed individuals and SMEs, for regular loans, and for refinance loans.

In addition, portfolio loan-by-loan data and amortisation profile were also provided as at 3 March 2021.

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.

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 1.8% for regular loans, 8.1% for refinance loans, 99.0% for loans with an internal rating of 1 and 21.0% for loans with an internal rating of 2, a 10.0% and 20.0% increase on the base case PD.
-- Recovery Rates Used: Base case weighted average recovery rate of 24.74% at the AA (low) (sf) and 35.42% at the CCC (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 an impact on the Series B Notes rating. A hypothetical decrease of the base case recovery rate by 20%, ceteris paribus, 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. 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. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: María López, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 30 March 2021

DBRS Ratings GmbH, Sucursal en España
Paseo de la Castellana 81,
Plantas 26 & 27
28046 Madrid, Spain
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.

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].

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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