Press Release

DBRS Morningstar Finalises Provisional Ratings on BBVA RMBS 21 FT

RMBS

March 22, 2022

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional ratings on the following classes of notes issued by BBVA RMBS 21 FT (the Issuer):

-- Class A Notes at AA (sf)
-- Class B Notes at A (high) (sf)

The final rating assigned to the Class A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the final maturity date. The final rating on the Class B Notes addresses the ultimate payment of interest and the ultimate repayment of principal on or before the final maturity date.

The Class A and Class B Notes are issued at closing to finance the purchase of a portfolio of first-lien residential mortgage loans originated by Banco Bilbao Vizcaya Argentaria, S.A. (BBVA; rated A (high) with a Stable trend by DBRS Morningstar); Catalunya Banc, S.A. (CX); and UNIMM Banc, S.A. (UNIMM). The mortgage loans are secured over residential properties in Spain.

During 2011 and 2012, CX and UNNIM received capital investment from the Fund for Orderly Bank Restructuring, effectively nationalising both banks. BBVA acquired CX in April 2015 and, subsequently, CX was absorbed and merged with BBVA. Similarly, BBVA acquired UNNIM in March 2012 and, subsequently, UNNIM was absorbed and merged with BBVA. The transaction will be managed by Europea de Titulización, S.A., Sociedad Gestora de Fondos de Titulización (the Management Company). BBVA is the servicer of the portfolio.

The Class A Notes benefit from the EUR 372 million (3.0%) subordination of the Class B Notes plus the EUR 620 million (5.0%) reserve fund, which is available to cover senior expenses as well as interest and principal on the Class A Notes until paid in full. The reserve fund will amortise with a target equal to the lower of EUR 620 million and 10.0% of the outstanding balance of the Class A and Class B Notes, subject to a floor of EUR 310 million. The reserve fund will not amortise if certain performance triggers are breached. The Class A Notes will benefit from full sequential amortisation whereas principal on the Class B Notes will not be paid until the Class A Notes have been redeemed in full. Additionally, the Class A Notes principal will be senior to the Class B Notes interest payments in the priority of payments.

DBRS Morningstar was provided with a provisional portfolio equal to EUR 12.7 billion as of 12 January 2022 (the cut-off date), which consisted of 120,168 loans extended to 118,918 borrowers. The weighted-average (WA) original loan-to-value (LTV) ratio stands at 78.6% whereas the WA current indexed LTV is 60.4%. The mortgage loan portfolio is distributed among the Spanish regions of Catalonia (21.6% by current balance), Andalusia (18.4%), and Madrid (16.6%). The mortgage loans in the asset portfolio are almost all owner occupied, with 6.1% classified as second homes. All the loans in the pool pay on a repayment basis, 12.7% of which have a balloon payment at maturity that is 27.9% of the loan balance on average. Of the portfolio balance, 13.5% of the loans were granted to self-employed borrowers. As of the cut-off date, 1.1% of the mortgage loans were no more than 90 days in arrears and the final pool exclude those in arrears for more than 30 days. The WA coupon of the mortgages is 0.57% and the WA seasoning is 130.8 months.

Of the portfolio balance, 93.7% are mortgages that allow for loan modifications subject to select criteria, depending on the type of mortgage product. The majority of the portfolio balance consists of loans eligible for margin or interest rate reduction. The allowable loan modifications include (1) change of maturity date, (2) application for payment holidays, (3) change to the type of interest, (4) change in the amortisation profile, and (5) margin or interest rate reductions. The loan modifications are integrated into the loan contracts and are seen as complementary to the permitted variation under the transaction’s documents. Additionally, the servicer can grant loan modifications without the Management Company’s consent. DBRS Morningstar stressed the margin of the portfolio to the minimum margin allowed per loan agreement and extended the maturity to the longest possible date in its cash flow analysis for 10% of the portfolio.

Currently, 12.0% of the portfolio are fixed-rate loans for life and 1.6% are fixed-rate loans that will switch to a floating rate indexed to 12-month Euribor or Indice de Referencia de Préstamos Hipotecarios (IRPH). The remaining 86.4% of the portfolio are floating-rate loans indexed to 12-month Euribor or IRPH. In comparison, the notes are floating rate linked to three-month Euribor. The Issuer’s fixed-floating risk and basis risk exposure is hedged through an interest rate swap agreement that references the total interest earned on the mortgage loans and pays the Issuer the WA interest rate of the bonds plus 0.65% multiplied by the outstanding balance of the non-delinquent loans (the notional amount).

The transaction’s account bank agreement and replacement trigger require BBVA acting as the treasury account bank to find (1) a replacement account bank or (2) an account bank guarantor upon loss of an applicable A (low) account bank rating. DBRS Morningstar’s Long Term Critical Obligation Rating (COR), Long-Term Senior Debt rating and Issuer Rating, and Long-Term Deposits rating on BBVA are AA (low), A (high), and A (high), respectively, as of the date of this press release. The applicable account bank rating is the higher of one notch below the COR, Long-Term Senior Debt rating, and Long-Term Deposits rating on BBVA. Based on the DBRS Morningstar current reference rating of BBVA at A (high), 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 Class A Notes, as described in DBRS Morningstar's Legal Criteria for European Structured Finance Transactions methodology.

DBRS Morningstar based its ratings on the following analytical considerations:
-- The transaction capital structure and form and sufficiency of available credit enhancement.
-- The credit quality of the portfolio and DBRS Morningstar’s qualitative assessment of BBVA’s capabilities with regard to originations, underwriting, and servicing. DBRS Morningstar was provided with BBVA’s historical mortgage performance data as well as loan-level data for the mortgage portfolio. DBRS Morningstar calculated probability of default (PD), loss given default (LGD), and expected loss levels on the mortgage portfolio, which DBRS Morningstar used as inputs in the cash flow tool. DBRS Morningstar analysed the mortgage portfolio in accordance with its “European RMBS Insight Methodology” and “European RMBS Insight: Spanish Addendum”.
-- The transaction’s ability to withstand stressed cash flow assumptions and repay the noteholders according to the terms and conditions in the transaction documents. DBRS Morningstar analysed the transaction structure using Intex DealMaker. DBRS Morningstar considered additional sensitivity scenarios of 0% conditional repayment rate stress.
-- The transaction parties’ financial strength to fulfil their respective roles.
-- The transaction’s legal structure and its consistency with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology as well as the presence of the appropriate legal opinions that address the assignment of the assets to the Issuer.
-- DBRS Morningstar’s sovereign rating on the Kingdom of Spain of “A” with a Stable trend as of the date of this press release.

The Coronavirus Disease (COVID-19) and the resulting isolation measures had caused an economic contraction, leading in some cases to increases in unemployment rates and income reductions for borrowers.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 9 December 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/389454/baseline-macroeconomic-scenarios-for-rated-sovereigns-december-2021-update and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

On 14 March 2022, 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. For more details, please see: https://www.dbrsmorningstar.com/research/393639/emerging-from-the-covid-19-pandemic-update-on-european-mortgage-performance 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 methodologies applicable to the ratings are the “European RMBS Insight Methodology” (3 June 2021) and the “European RMBS Insight: Spanish Addendum” (6 July 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 methodologies consistently and conducted a review of the transaction in accordance with the principal 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 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 this rating include BBVA and Europea de Titulización. DBRS Morningstar was provided with loan-level data as of 12 January 2022 and historical performance data (dynamic delinquencies and prepayment data) covering the period from January 2014 to December 2021. In addition, DBRS Morningstar was provided with a sample of 6,455 repossessed properties sold between 2010 and 2022.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

DBRS Morningstar was supplied with one 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 newly issued financial instruments. These are the first DBRS Morningstar ratings on these financial instruments.

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 rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

-- In respect of the Class A Notes, the PD of 16.2% and LGD of 38.2%, corresponding to a AA (sf) stress scenario, were stressed assuming 25% and 50% increase on the PD and LGD.
-- In respect of the Class B Notes, the PD of 13.4% and LGD of 34.1%, corresponding to a A (high) (sf) stress scenario, were stressed assuming 25% and 50% increase on the PD and LGD.

Class A Notes Risk Sensitivity:
-- A hypothetical increase of the PD of 25%, ceteris paribus, would lead to a downgrade to A (high) (sf).
-- A hypothetical increase of the PD of 50%, ceteris paribus, would lead to a downgrade to A (high) (sf).
-- A hypothetical increase of the LGD of 25%, ceteris paribus, would maintain the rating at AA (sf).
-- A hypothetical increase of the LGD of 50%, ceteris paribus, would lead to a downgrade to A (high) (sf).
-- A hypothetical increase of the PD of 25% and LGD by 25%, ceteris paribus, would lead to a downgrade to A (high) (sf).
-- A hypothetical increase of the PD of 25% and LGD by 50%, ceteris paribus, would lead to a downgrade to A (sf).
-- A hypothetical increase of the PD of 50% and LGD by 25%, ceteris paribus, would lead to a downgrade to A (low) (sf).
-- A hypothetical increase of the PD of 50% and LGD by 50%, ceteris paribus, would lead to a downgrade to BBB (high) (sf).

Class B Notes Risk Sensitivity:
-- A hypothetical increase of the PD of 25%, ceteris paribus, would lead to a downgrade to A (low) (sf).
-- A hypothetical increase of the PD of 50%, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- A hypothetical increase of the LGD of 25%, ceteris paribus, would lead to a downgrade to A (sf).
-- A hypothetical increase of the LGD of 50%, ceteris paribus, would lead to a downgrade to A (low) (sf).
-- A hypothetical increase of the PD of 25% and LGD by 25%, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- A hypothetical increase of the PD of 25% and LGD by 50%, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- A hypothetical increase of the PD of 50% and LGD by 25%, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- A hypothetical increase of the PD of 50% and LGD by 50%, ceteris paribus, would lead to a downgrade to BBB (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.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Marcos Meier, Senior Analyst
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 17 March 2022

DBRS Ratings GmbH, Sucursal en España
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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: 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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