Press Release

DBRS Morningstar Confirms AA Rating on Cajasur Banco S.A. Cédulas Hipotecarias

Covered Bonds

July 16, 2021

DBRS Ratings GmbH (DBRS Morningstar) confirmed its AA rating on the Cédulas Hipotecarias (CH; the Spanish Mortgage Covered Bonds) with ISIN ES0413464027 issued under the Cajasur Banco S.A. Covered Bonds (Cédulas Hipotecarias - Mortgages) programme (the Programme). This rating action follows the completion of a full review of the Programme.

As of today, there were four series of CH under the Programme, totalling an outstanding nominal amount of EUR 2.0 billion. All CH series issued under the Programme rank pari passu with each other.

The rating reflects the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) reflective of the likelihood that the source of payments will switch from the Reference Entity to the Cover Pool (CP). Cajasur Banco S.A. (Cajasur) is the Issuer and Reference Entity for the Programme. There is no Critical Obligations Rating associated with the Reference Entity and DBRS Morningstar classifies Spain as a jurisdiction in which covered bonds are a particularly important funding instrument.
-- A legal and structuring framework (LSF) assessment of “Average” associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of BBB (low), which is the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L).
-- An LSF-L of A (high).
-- A two-notch uplift for high recovery prospects.
-- A level of overcollateralisation (OC) of 225.9% to which DBRS Morningstar gives credit, which is the minimum observed OC level during the past 12 months adjusted by a scaling factor of 0.85.

DBRS Morningstar analysed the transaction using its European Covered Bond Cash Flow tool. The main assumptions focused on the timing of defaults and recoveries of the assets, interest rate stresses, and market value spreads to calculate liquidation values on the CP.

Everything else being equal, a one-notch downgrade of the CBAP would lead to a one-notch downgrade of the LSF-L, resulting in a one-notch downgrade of the covered bonds rating.

In addition, everything else being equal, the CH rating would be downgraded if any of the following occurred: (1) the CPCA was downgraded to below BBB (low); (2) the quality of the CP and the level of OC were no longer sufficient to support a two-notch uplift for high recovery prospects; (3) the relative amortisation profile of the CH and CP moved adversely; or (4) volatility in the financial markets caused the currently estimated market value spreads to increase.

The total outstanding amount of CH is currently EUR 2.0 billion. As at 31 March 2021, the aggregate balance of the mortgages in the CP was EUR 7.6 billion, resulting in a total OC of 275.8%. The eligible CP stood at EUR 6.7 billion, resulting in an eligible OC of 231.2%.

As of March 2021, the CP comprised 106,321 mortgage loans with a weighted-average current unindexed loan-to-value ratio of 58.2%, split as follows: 87.4% residential, 6.9% commercial, 3.1% developers, and 2.6% land loans. The pool is concentrated in Andalusia (98.4%), Cajasur’s main area of business activity. The pool has a seasoning of 7.9 years.
The majority of the loans in the CP (73.1%) are floating rate, while 26.2% of the liabilities pay a fixed coupon. As is usual in Spanish CH, there are no swaps for the benefit of the CH holders. This has been accounted for in DBRS Morningstar’s cash flow analysis.

The weighted-average life of the assets is approximately 10.2 years, while that of the covered bonds is about 4.7 years. The resulting asset-liability maturity mismatch is mitigated by the available OC.

All liabilities are denominated in euros, while 0.02% of the pool assets by loan balance were originated in a different currency. This residual exposure is mitigated by the available OC.

DBRS Morningstar has assessed the LSF related to the Programme as “Average” according to its rating methodology. For more information, please refer to the DBRS Morningstar commentaries: “Spanish Mortgage Covered Bonds: Legal and Structuring Framework Review” and “DBRS Assigns Legal and Structuring Framework Assessment to Spanish Mortgage Covered Bonds Programmes”, which are available at www.dbrsmorningstar.com.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading in some cases to increases in unemployment rates and income reductions for borrowers. DBRS Morningstar anticipates that delinquencies may continue to increase in the coming months for many cover pools, some meaningfully. The ratings are based on additional analysis and, where appropriate, adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. In the cover pool analysis of this programme, DBRS Morningstar incorporated an increase in probability of default for certain borrower characteristics.

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 18 June 2021. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/380281/global-macroeconomic-scenarios-june-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.

On 14 June 2021, DBRS Morningstar updated its 5 May 2020 commentary outlining the impact of the coronavirus crisis on performance of DBRS Morningstar-rated residential mortgage-backed securities (RMBS) transactions in Europe one year on. For more details, please see: https://www.dbrsmorningstar.com/research/380094/the-impact-of-covid-19-on-european-mortgage-performance-one-year-on and https://www.dbrsmorningstar.com/research/360599/european-rmbs-transactions-risk-exposure-to-coronavirus-covid-19-effect.

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 regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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.

For further information on the Programme, please refer to the rating report available on www.dbrsmorningstar.com.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is “Rating and Monitoring Covered Bonds” (10 June 2021).

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 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/381451/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for this rating include stratification tables on the CP as at 31 March 2021 provided by Cajasur.

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 not 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 this rating 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 17 July 2020, when DBRS Morningstar confirmed its AA rating on the CH ES0413464027.

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

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. 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: Antonio Laudani, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 19 July 2019

DBRS Ratings GmbH, Sucursal en España
Paseo de la Castellana, 81
Plantas 26 & 27
28046 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:
https://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: 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].

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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