DBRS Morningstar Takes Rating Actions on the Notes Issued by Two IM Cajamar Transactions

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the notes issued by IM Cajamar 5 F.T.A. (Cajamar 5) and IM Cajamar 6 F.T.A. (Cajamar 6):

Cajamar 5
-- Class A Notes upgraded to AAA (sf) from AA (high) (sf)

Cajamar 6
-- Class A Notes confirmed at AAA (sf)

The ratings on the notes address the timely payment of interest and the ultimate payment of principal on or the final maturity date in June 2050 (Cajamar 5) and December 2050 (Cajamar 6).

The rating actions follow an annual review of the transactions and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses as of the September 2021 payment date;
-- Portfolio default rate (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- The current available credit enhancement to the notes to cover the expected losses assumed at their AAA (sf) rating level;
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

Cajamar 5 and Cajamar 6 closed in September 2007 and February 2008, respectively. Both transactions are Spanish residential mortgage-backed securities transactions originated and serviced by Cajamar Caja Rural, Sociedad Cooperativa de Crédito (Cajamar).

PORTFOLIO PERFORMANCE
For Cajamar 5, as of the September 2021 payment date, loans that were one to two months and two to three months delinquent represented 0.5% and 0.3% of the portfolio balance, respectively, while loans more than three months delinquent represented almost 0.0%. Gross cumulative defaults amounted to 5.9% of the aggregate original portfolio balance, with cumulative recoveries of 86.1% to date.

For Cajamar 6, as of the September 2021 payment date, loans that were one to two months and two to three months delinquent represented 1.0% and 0.6% of the portfolio balance, respectively, while loans more than three months delinquent represented 0.2%. Gross cumulative defaults amounted to 8.4% of the aggregate original portfolio balance, with cumulative recoveries of 88.6% to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables in each transaction and updated its base case PD and LGD assumptions as follows:

For Cajamar 5, DBRS Morningstar has updated its base case PD and LGD assumptions to 2.3% and 3.1%, respectively.

For Cajamar 6, DBRS Morningstar has updated its base case PD and LGD assumptions to 2.9% and 9.0%, respectively.

CREDIT ENHANCEMENT
For each transaction, credit enhancement to the rated notes is provided by the subordination of junior classes and a cash reserve.

For both transactions, the Class A, Class B, Class C, and Class D notes follow a pro rata amortisation schedule. As of the September 2021 payment date, for Cajamar 5 the Class A Notes credit enhancement slightly increased to 11.2% from 10.7%, given that the reserve fund reached a floor; for Cajamar 6 the Class A Notes credit enhancement remained unchanged at 16.8%.

For Cajamar 5, the transaction benefits from an amortising cash reserve, currently at its floor and target balance of EUR 7.5 million. For Cajamar 6, the transaction benefits from an amortising cash reserve, currently at its target level of EUR 26.2 million. Both reserves provide liquidity and credit support to the Class A, Class B, Class C, and Class D notes.

Banco Santander SA (Santander) acts as the account bank for the two transactions. Based on Santander’s reference rating of A (high), one notch below the 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 structures, DBRS Morningstar considers the risk arising from the exposure to Santander to be consistent with the ratings of the 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 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 RMBS 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 these transactions, DBRS Morningstar increased the expected default rate for self-employed borrowers, 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 or payment moratoriums in the portfolio. As of August 2021, the loans that benefit from moratorium due to coronavirus represented 0.0% of both portfolios.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 8 September 2021. DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/384150/baseline-macroeconomic-scenarios-for-rated-sovereigns and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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 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.

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 these transactions 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 transactions in accordance with the principal methodology.

A review of the transactions 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 DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The sources of data and information used for these ratings include reports provided by InterMoney Titulización, S.G.F.T., S.A. 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 for the two transactions. However, this did not impact the rating analyses.

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 actions on these transactions took place on 6 April 2021, when DBRS Morningstar upgraded its rating on the Class A Notes of Cajamar 5 to AA (high) (sf) from A (high) (sf) and upgraded its rating on the Class A Notes of Cajamar 6 to AAA (sf) from AA (sf).

The lead analyst responsibilities for both transactions 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 (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 loans for the Issuer are 2.3% and 3.1%, respectively, for Cajamar 5 and 2.9% and 9.0%, respectively, for Cajamar 6.
-- 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, for Cajamar 5 if the LGD increases by 50%, the rating of the Class A notes would be expected to be downgraded to AA (high) (sf) from AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A notes would be expected to be downgraded to AA (low) (sf) from AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A would be expected to be downgraded to A (high) (sf) from AAA (sf).

Cajamar 5 Class A Notes 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 (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)

Cajamar 6 Class A Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (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 (sf)

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: Helvia Meana, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Dates:
Cajamar 5: 23 May 2013
Cajamar 6: 6 September 2013

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: http://www.dbrsmorningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (8 February 2021), https://www.dbrsmorningstar.com/research/373435/master-european-structured-finance-surveillance-methodology.
-- European RMBS Insight Methodology (3 June 2021) and European RMBS Insight Model v 5.2.0.0, https://www.dbrsmorningstar.com/research/379557/european-rmbs-insight-methodology.
-- European RMBS Insight: Spanish Addendum (6 July 2021), https://www.dbrsmorningstar.com/research/381224/european-rmbs-insight-spanish-addendum.
-- Legal Criteria for European Structured Finance Transactions (29 July 2021), https://www.dbrsmorningstar.com/research/382171/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (16 September 2021), https://www.dbrsmorningstar.com/research/384513/operational-risk-assessment-for-european-structured-finance-servicers.
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2021), https://www.dbrsmorningstar.com/research/384920/interest-rate-stresses-for-european-structured-finance-transactions.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021), https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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].