Press Release

DBRS Morningstar Confirms Ratings on the Notes Issued by Caixabank Consumo 3 F.T.

Consumer Loans & Credit Cards

July 19, 2021

DBRS Ratings GmbH (DBRS Morningstar) confirmed its ratings on the Series A and Series B notes issued by Caixabank Consumo 3 F.T. (the Issuer) at AA (high) (sf) and CC (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 March 2053. 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 June 2021 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; and
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

The transaction is a static securitisation collateralised by a portfolio of consumer loans granted and serviced by CaixaBank, S.A. (CaixaBank) to individuals in Spain. The portfolio consists of unsecured and mortgage loans, including standard contracts and drawdowns from a revolving credit line (Disposiciones de Crédito Hipotecario). At closing, the EUR 2.5 billion portfolio consisted of loans granted to borrowers primarily in Catalonia (32.7% of the initial portfolio balance), Andalusia (17.4%), and Madrid (11.9%). The transaction closed in July 2017.

PORTFOLIO PERFORMANCE
As of the June 2021 payment date, loans that were 30 to 60 days and 60 to 90 days delinquent represented 0.3% and 0.04% of the outstanding collateral balance, respectively, while 90+-day delinquencies represented 4.1%. Gross cumulative defaults were 4.0% of the original portfolio balance, with cumulative recoveries of 5.4% to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the portfolio of receivables and updated its PD and LGD assumptions to 5.8% and 64.6%, respectively, for the unsecured consumer loans in the portfolio, and to 9.0% and 4.4%, 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 June 2021 payment date, credit enhancement to the Series A notes increased to 39.3% from 27.3% at the time of the last annual review 12 months ago while credit enhancement to the Series B notes slightly increased to 4.5% from 4.4%.

The transaction benefits from an amortising cash reserve available to cover senior expenses and all payments due on the senior-most class of notes outstanding. This reserve was funded to EUR 98.0 million at closing through a subordinated loan granted by CaixaBank and, starting from the September 2019 payment date, has been amortising to its target level of 4% of the outstanding principal balance of the Series A and Series B notes. As of the June 2021 payment date, the cash reserve was at its target of EUR 22.0 million.

CaixaBank acts as the Issuer account bank provider for the transaction. Based on DBRS Morningstar’s account bank reference rating of A (high) on CaixaBank (which is one notch below its 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 rating assigned to the Series A 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 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 continue to increase in the coming months for many ABS transactions, 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.

For this transaction, DBRS Morningstar applied an additional haircut to its base case recovery rate for unsecured collateral, increased the expected default rate for self-employed borrowers for mortgage collateral, 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 in the portfolio. As of 30 April 2021, 18.2% of the pool was benefitting from payment holidays.

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

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.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (8 February 2021).

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.

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.

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 these ratings include investor reports and additional information provided by CaixaBank Titulización, S.G.F.T., S.A.U (the Management Company) as well as 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 6 April 2021, when DBRS Morningstar upgraded the rating on the Series A notes to AA (high) (sf) from A (high) (sf) following the finalisation of the “Legal Criteria for European Structured Finance Transactions” methodology. The last annual review of the transaction took place on 20 July 2020, when DBRS Morningstar confirmed its ratings on the Series A and Series B notes at A (high) (sf) and CC (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 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.
-- The base case PD and LGD of the current pool of mortgage receivables are 9.0% and 4.4%, respectively. The base case PD and LGD of the current pool of unsecured consumer loan receivables are 5.8% and 64.6%, 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 AA (high) (sf), ceteris paribus. If the PD increases by 50%, the rating of the Series A notes would be expected to remain at AA (high) (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 AA (high) (sf).

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)

The rating on the Series B notes would not be affected by any change in either the PD or the LGD.

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: Daniel Rakhamimov, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 18 July 2017

DBRS Ratings GmbH
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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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