Press Release

DBRS Morningstar Upgrades and Confirms Ratings on Three CaixaBank PYMES Transactions

Structured Credit

August 17, 2022

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the notes issued by three CaixaBank PYMES transactions:

CaixaBank PYMES 9, FT (CX9)
-- Series A Notes confirmed at AA (high) (sf)
-- Series B Notes confirmed at CCC (high) (sf)

CaixaBank PYMES 10, FT (CX10)
-- Series A Notes confirmed at AA (high) (sf)
-- Series B Notes confirmed at CCC (sf)

CaixaBank PYMES 11, FT (CX11)
-- Series A Notes upgraded to AA (high) (sf) from AA (sf)
-- Series B Notes upgraded to B (sf) from CCC (high) (sf)

The ratings on the Series A notes in each transaction address the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date for each transaction (March 2053 for CX9, October 2051 for CX10, and April 2052 for CX11).

The ratings on the Series B notes in each transaction address the ultimate payment of interest and the ultimate payment of principal on or before the legal final maturity date for each transaction.

The rating actions follow an annual review of the transactions and are based on the following analytical considerations:
-- The portfolio performance, in terms of level of delinquencies and defaults, as of the latest payment date for each transaction (June and July);
-- The one-year base case probability of default (PD) and default and recovery rates on the outstanding receivables; and
-- The current available credit enhancement to the rated notes to cover the expected losses assumed in line with their respective rating levels.

CX9, CX10, and CX11 are securitisations of secured and unsecured loans and drawdowns of secured and unsecured lines of credit originated and serviced by CaixaBank, S.A. (CaixaBank) to corporates, small and medium-size enterprises, and self-employed individuals based in Spain. The transactions closed in November 2017, 2018, and 2019, respectively.

PORTFOLIO PERFORMANCE
CX9
As of the June 2022 payment date, loans more than three months delinquent represented 3.1% of the portfolio balance, up from 1.7% at the last annual review. Gross cumulative defaults amounted to 2.3% of the original collateral balance, up from 2.2%.

CX10
As of the July 2022 payment date, loans more than three months delinquent represented 3.1% of the portfolio balance, up from 2.1% at the last annual review. Gross cumulative defaults amounted to 1.6% of the original collateral balance, up from 1.3%.

CX11
As of the July 2022 payment date, loans more than three months delinquent represented 1.7% of the portfolio balance, up from 1.3% at the last annual review. Gross cumulative defaults increased to 1.1% of the original collateral balance, up from 0.6%. Receivables are classified as defaulted after 12 months of arrears as per the three transactions’ documentation.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis on the remaining pool of each transaction. For CX9, DBRS Morningstar updated the portfolio’s one-year base case PD assumption to 2.0%, removing Coronavirus Disease (COVID-19)-related adjustments to expected performance following the publication of its “European Structured Credit: Emerging from the COVID-19 Pandemic” commentary at https://www.dbrsmorningstar.com/research/401355. In addition, DBRS Morningstar updated the weighted-average recovery rate on the portfolio to 37.2% at the AA (high) (sf) rating level and to 46.0% at the CCC (high) (sf) rating level.

For CX10, DBRS Morningstar updated the portfolio’s one-year base case PD assumption to 2.5%, removing coronavirus-related adjustments. In addition, DBRS Morningstar updated the weighted-average recovery rate on the portfolio to 40.1% at the AA (high) (sf) rating level and to 48.8% at the CCC (sf) rating level.

For CX11, DBRS Morningstar updated the portfolio’s one-year base case PD assumption to 1.9%, removing coronavirus-related adjustments. In addition, DBRS Morningstar updated the weighted-average recovery rate on the portfolio to 26.9% at the AA (high) (sf) rating level and to 38.3% at the B (sf) rating level.

CREDIT ENHANCEMENT
Credit enhancement in the three transactions is provided by the subordination of the Series B notes and the reserve fund. The reserve fund is available to cover missed interest and principal payments on the Series A notes and Series B notes once the Series A notes have been paid in full. The reserve funds amortise in line with their target amortisation amounts (4.0% of the outstanding balance of the notes for CX9 and CX10, and 4.7% of the outstanding balance of the notes for CX11) and are currently slightly above their target levels at EUR 15.9 million for CX9, EUR 42.8 million for CX10, and EUR 57.6 million for CX11.

CX9
As of the June 2022 payment date, the credit enhancement to the Series A Notes was 70.1%, up from 48.6% at the last annual review; the credit enhancement to the Series B Notes was 4.7%, up from 4.4%.

CX10
As of the July 2022 payment date, the credit enhancement to the Series A Notes was 59.2%, up from 45.8% at the last annual review; the credit enhancement to the Series B Notes was 4.4%, up from 4.3%.

CX11
As of the July 2022 payment date, the credit enhancement to the Series A Notes was 33.4%, up from 25.3% at the last annual review; the credit enhancement to the Series B Notes was 5.1%, up from 5.0%.

CaixaBank acts as the account bank for the three transactions. 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 transactions structures, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the rated notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

DBRS Morningstar analysed the transactions structures in its proprietary Excel-based cash flow engine.

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” (10 June 2022).

Other methodologies referenced in these transactions 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 transactions in accordance with the surveillance section of the principal methodology.

Effective 19 May 2022, CaixaBank amended the trust deed of the three transactions to allow for the repurchase of loans defaulted or classified as doubtful by the bank with no limits. Apart from this amendment, 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 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 for the three transactions. 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 CX9 and CX10 transactions took place on 18 November 2021, when DBRS Morningstar upgraded the rating on the Series A Notes of CX9 to AA (high) (sf) from AA (sf), and confirmed the ratings on the Series B Notes of CX9 as well as the Series A and B Notes of CX10 at CCC (high) (sf), AA (high) (sf), and CCC (sf), respectively. The last rating action on CX11 transaction took place on 10 September 2021, when DBRS Morningstar upgraded the rating on the Series A Notes to AA (sf) from AA (low) (sf) and confirmed the rating on the Series B Notes at CCC (high) (sf).

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

Sensitivity Analysis: 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):
-- PD Rates Used: Base case PD of 2.0%, 2.5% and 1.9% for CX9, CX10 and CX11, respectively; a 10% and 20% increase on the base case PD.
-- Recovery Rates Used: Base-case recovery rates of 37.2% at the AA (high) (sf) and 46.0% at the CCC (high) (sf) stress levels for CX9, 40.1% at the AA (high) (sf) and 48.8% at the CCC (sf) stress levels for CX10, and of 26.9% at AA (high) (sf) and 38.3% at the B (sf) stress levels for CX11, a 10% and 20% decrease in the base-case recovery rate. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery-rate levels.

CX9
DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20% or a hypothetical decrease of the base case recovery rate by 20%, ceteris paribus, would lead to a confirmation of the Series A Notes at AA (high) (sf) and a downgrade of the Series B Notes to CCC (low) (sf) from CCC (high) (sf). 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 (high) (sf) and a downgrade of the Series B Notes to CCC (low) (sf) from CCC (high) (sf).

CX10
DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20% or a hypothetical decrease of the base case recovery rate by 20%, ceteris paribus, would lead to a confirmation of the Series A Notes at AA (high) (sf) and a downgrade of the Series B Notes to CCC (low) (sf) from CCC (sf). 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 (high) (sf) and a downgrade of the Series B Notes to CCC (low) (sf) from CCC (sf).

CX11
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 at AA (high) (sf) and a downgrade of the Series B Notes to B (low) (sf) from B (sf). A hypothetical decrease of the base case recovery rate by 20%, ceteris paribus, would not have an impact on the ratings of both Series of Notes. 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 lead to a confirmation of the Series A Notes at AA (high) (sf) and a downgrade of the Series B Notes to B (low) (sf) from B (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, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Dates:
CX9: 21 November 2017
CX10: 20 November 2018
CX11: 21 November 2019

DBRS Ratings GmbH
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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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