Press Release

DBRS Morningstar Upgrades and Confirms Ratings on Notes Issued by CaixaBank PYMES 11, FT

Structured Credit

September 10, 2021

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the notes issued by CaixaBank PYMES 11, FT:

-- Series A Notes upgraded to AA (sf) from AA (low) (sf)
-- Series B Notes confirmed at CCC (high) (sf)

The rating on the Series A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal maturity date in April 2052. The rating on the Series B Notes addresses the ultimate payment of interest and principal on or before the legal maturity date.

The rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- The portfolio performance, in terms of level of delinquencies and defaults, as of the July 2021 payment date;
-- The one-year base case probability of default (PD) and default and recovery rates on the outstanding receivables;
-- The current available credit enhancement to the Notes to cover the expected losses assumed in line with their respective rating levels; and
-- The current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

CaixaBank PYMES 11, FT is a cash flow securitisation collateralised by a portfolio of secured and unsecured loans and drawdowns of secured lines of credit originated and serviced by CaixaBank, S.A. (CaixaBank) to corporates, small and medium-size enterprises (SMEs), and self-employed individuals based in Spain. The transaction closed in November 2019.

PORTFOLIO PERFORMANCE
The transaction’s performance has been stable since closing. As of June 2021, loans that were two to three months in arrears represented 0.00% of the outstanding portfolio balance compared with 0.05% at the last annual review. The 90+-day delinquency ratio was 1.30%, up from 0.91% last year, and the cumulative gross default ratio stood at 0.60% of the original portfolio balance compared with 0.04% at the last annual review. Receivables are classified as defaulted after 12 months of arrears per the transaction documentation.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis on the remaining pool of receivables and updated its default rate and recovery assumptions on the outstanding portfolio to 29.8% and 29.9%, respectively, at the AA (sf) rating level and to 8.3% and 38.8%, respectively, at the CCC (high) (sf) rating level. DBRS Morningstar updated the base case PD to 2.7%, including coronavirus adjustments as described below.

CREDIT ENHANCEMENT
The credit enhancement available to the Series A Notes has increased as the transaction deleverages, prompting the rating upgrade. As of the July 2021 payment date, the credit enhancement available to the Series A Notes was 25.3%, up from 21.0% at the time of the last annual review. Credit enhancement to the Series A Notes is provided by subordination of the Series B Notes and a reserve fund. The reserve fund was funded through a subordinated loan and is available to cover senior fees, interest, and principal payments 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 started amortising 12 months after closing, subject to the target level being equal to 4.7% of the outstanding balance of the rated notes.

CaixaBank acts as the account bank for the transaction. Based on the account bank reference rating of A (high) on CaixaBank (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 its proprietary Excel-based cash flow engine.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an immediate economic contraction, leading in some cases to 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 SME transactions. The ratings are based on additional analysis 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 on receivables granted to obligors operating in certain industries based on their perceived exposure to the adverse disruptions of the coronavirus. As per DBRS Morningstar’s assessment, 6.5% and 38.7% of the outstanding portfolio balance represented industries classified in the mid-high and high-risk economic sectors, respectively. This led the underlying one-year PDs to be multiplied by 1.5 times (x) and 2.0x, respectively, as per DBRS Morningstar’s “European Structured Credit Transactions’ Risk Exposure to Coronavirus (COVID-19) Effect” commentary released on 18 May 2020, wherein DBRS Morningstar discussed the overall risk exposure of the SME sector to the coronavirus and provided a framework for identifying the transactions that are more at risk and more likely to be affected by the fallout of the pandemic on the economy. For more details, please see: https://www.dbrsmorningstar.com/research/361098/european-structured-credit-transactions-risk-exposure-to-coronavirus-covid-19-effect and
https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.

DBRS Morningstar also conducted an 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 June 2021, approximately 13% of the portfolio was reported to be currently under principal grace periods.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 8 September 2021. For details, see the following commentary: https://www.dbrsmorningstar.com/research/384150/baseline-macroeconomic-scenarios-for-rated-sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the referenced report.

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.

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” (28 June 2021).

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.

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the surveillance section of 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 transaction reports and information provided by the management company, CaixaBank Titulización, S.G.F.T., S.A.U., 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 11 September 2020, when DBRS Morningstar confirmed the rating on the Series A Notes at AA (low) (sf) and downgraded the rating on the Series B Notes to CCC (high) (sf) from B (sf), resolving the Under Review with Negative Implication status on the notes following the outbreak and potential impact of the coronavirus.

The lead analyst responsibilities for this transaction have been transferred to Helvia Meana.

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.

-- PD Used: Base case PD of 2.7% , a 10.0% and 20.0% increase on the base case PD.
-- Recovery Rates Used: Base case recovery rate of 29.9% at the AA (sf) and 38.8% at the CCC (high) (sf) stress levels, a 10% and 20% decrease in the base case recovery rates, respectively.

For the Series A Notes, DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20%, ceteris paribus, would lead to a confirmation of the Series A Notes rating at AA (sf) and a downgrade of the Series B Notes to CCC (sf). A hypothetical decrease of the base case recovery rate by 20%, ceteris paribus, would also lead to a confirmation of the Series A Notes at AA (sf) and a downgrade of the Series B Notes to CCC (sf). Finally, 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 also lead to a confirmation of the Series A Notes at AA (sf) and a downgrade of the Series B Notes to CCC (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. 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: Helvia Meana, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 21 November 2019

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.

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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