DBRS Morningstar Upgrades and Confirms Ratings on Two CaixaBank RMBS Transactions

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

CaixaBank RMBS 1, FT (CX1)
-- Class A Notes confirmed at AA (sf)
-- Class B Notes upgraded to A (low) (sf) from BBB (low) (sf)

CaixaBank RMBS 2, FT (CX2)
-- Class A Notes upgraded to AA (sf) from AA (low) (sf)
-- Class B Notes confirmed at BB (high) (sf)

The ratings on the Class A Notes address the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date of each transaction. The ratings on the Class B Notes address the ultimate payment of interest and principal on or before the legal final maturity date of each transaction.

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 December 2022 and January 2023 payment dates for CX1 and CX2, respectively.
-- Portfolio default rate (PD), loss given default (LGD), and expected loss assumptions on the outstanding collateral pools; and
-- The current available credit enhancement to the Rated Notes to cover the expected losses assumed at their respective rating levels.

CX1 and CX2 are securitisations of first-lien residential mortgage loans and first-lien multicredito (drawn credit lines) mortgages on properties in Spain originated and serviced by CaixaBank, S.A. (CaixaBank), that closed in February 2016 and March 2017, respectively.

PORTFOLIO PERFORMANCE
CX1: As of December 2022, loans more than 90 days in arrears slightly decreased to 1.4% from 1.6% of the outstanding performing portfolio collateral balance at the time of the last annual review. The cumulative default ratio was at 1.4% of the original portfolio balance (versus 1.3% in December 2021).

CX2: As of January 2023, loans more than 90 days in arrears were almost unchanged at 1.7% of the outstanding performing portfolio collateral balance. The cumulative default ratio was at 1.4% of the original portfolio balance (versus 1.2% in January 2022).

PORTFOLIO ASUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis on the remaining receivables, considering updated multicredito balances, and updated its base case PD and LGD assumptions to 2.4% and 10.6% (from 6.0% and 12.9%), respectively, for CX1, and to 2.1% and 9.0% (from 6.2% and 11.4%), respectively, for CX2.

CREDIT ENHANCEMENT
CX1: As of the December 2022 payment date, credit enhancement to the Class A Notes was 23.3%, up from 20.8% one year ago. The Class A Notes benefit from a reserve fund that provides liquidity support and credit support to the Class A Notes. After two years from closing, the reserve fund may amortise over the life of the transaction subject to certain amortisation triggers. The reserve fund is currently at its target level of EUR 568.0 million, which is the minimum of 8.0% of the outstanding balance of the rated notes and 4.0% of their initial balance, subject to a floor of 2.0% of that initial balance.

CX2: As of the January 2023 payment date, credit enhancement to the Class A Notes was 22.3%, up from 20.7% last year. The Class A Notes benefit from a reserve fund that provides liquidity support and credit support to the Class A Notes. After two years from closing, the reserve fund may amortise over the life of the transaction subject to the certain amortisation triggers. The reserve fund is currently at its target level of EUR 104.0 million, which is the minimum of 6.0% of the current outstanding balance of the rated notes and 4.75% of their initial balance.

The only available subordination for the Class B Notes is the reserve fund, which currently covers principal and interest payments on the Class A Notes only. However, upon payment in full of the Class A Notes, the reserve fund will also become available for the Class B Notes in each transaction.

CaixaBank acts as the account bank for both transactions. Based on the account bank reference rating of A (high) (sf) on CaixaBank, which is one notch below its DBRS Morningstar public 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 the account bank to be consistent with the ratings assigned to the 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 impact 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 transaction structures in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (7 February 2023); https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-methodology.

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 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/401817/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 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 purpose 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 17 February 2022, when DBRS Morningstar confirmed its ratings on the rated notes in both transactions.

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):

CX1:
-- 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 2.4% and 10.6%, 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 Class A Notes would be expected to remain at AA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to remain at AA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to remain at AA (sf).

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

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD, expected rating of A (low) (sf)
-- 50% increase in PD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)

CX2:
-- 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 2.1% and 9.0%, 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 Class A Notes would be expected to remain at AA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to remain at AA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to remain at AA (sf).

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

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in LGD, expected rating of BB (high)(sf)
-- 25% increase in PD, expected rating of BB (high) (sf)
-- 50% increase in PD, expected rating of BB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (high) (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.

CX1:
Lead Analyst: Helvia Meana, Assistant Vice president
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 23 February 2016

CX2:
Lead Analyst: Helvia Meana, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 20 March 2017

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The rating methodologies used in the analysis of these transactions can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (7 February 2023),
https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-methodology.
-- Legal Criteria for European Structured Finance Transactions (22 July 2022),
https://www.dbrsmorningstar.com/research/400166/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2022),
https://www.dbrsmorningstar.com/research/402774/operational-risk-assessment-for-european-structured-finance-servicers.
-- European RMBS Insight Methodology (28 March 2022) and European RMBS Insight Model v 5.7.1.0,
https://www.dbrsmorningstar.com/research/394309/european-rmbs-insight-methodology.
-- European RMBS Insight: Spanish Addendum (26 April 2022),
https://www.dbrsmorningstar.com/research/395805/european-rmbs-insight-spanish-addendum.
-- Interest Rate Stresses for European Structured Finance Transactions (22 September 2022),
https://www.dbrsmorningstar.com/research/402943/interest-rate-stresses-for-european-structured-finance-transactions.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (17 May 2022), https://www.dbrsmorningstar.com/research/396929/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 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].