Press Release

DBRS Morningstar Confirms AA (high) Credit Rating on Cajasur Banco S.A. Covered Bonds (Cédulas Hipotecárias - Mortgages)

Covered Bonds

July 07, 2023

DBRS Ratings GmbH (DBRS Morningstar) confirmed its AA (high) credit rating on the Cédulas Hipotecárias (CH; the Spanish mortgage covered bonds) with ISIN ES0413464027 issued under the Cajasur Banco S.A. Covered Bonds (Cédulas Hipotecarias - Mortgages) programme (the Programme). This rating action follows the completion of a full review of the Programme.

As of the date of this press release, there were two series of CH under the Programme, totalling an outstanding nominal amount of EUR 1.7 billion.

The credit rating reflects the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of “A”. Cajasur Banco S.A. (Cajasur) is the Issuer and Reference Entity for the Programme. There is no Critical Obligations Rating associated with the Reference Entity, but DBRS Morningstar classifies Spain as a jurisdiction in which covered bonds (CBs) are a particularly important funding instrument. As such, the CBAP is set at the Issuer Rating plus one notch.
-- A legal and structuring framework (LSF) assessment of “Strong” associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of BBB, which is the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L).
-- An LSF-L of AA (low).
-- A two-notch uplift for high recovery prospects.
-- A level of overcollateralisation (OC) of 39.9% to which DBRS Morningstar gives credit, which is the minimum observed OC level during the past 12 months adjusted by a scaling factor of 0.85.
-- The sovereign rating on the Kingdom of Spain, rated “A” with a Stable trend by DBRS Morningstar, as of the date of this press release.

DBRS Morningstar analysed the transaction using its European Covered Bond Cash Flow tool. The main assumptions focused on the timing of defaults and recoveries of the assets, interest rate stresses, and market value spreads to calculate liquidation values on the cover pool (CP).

Everything else equal, a one-notch downgrade of the CBAP would lead to a one-notch downgrade of the LSF-L, resulting in a one-notch downgrade of the CBs credit rating.

In addition, everything else equal, the CH credit rating would be downgraded if any of the following occurred: (1) the CPCA was downgraded below BBB; (2) the sovereign rating on the Kingdom of Spain was downgraded below A (low); (3) the LSF assessment associated with the Programme was downgraded to “Average” or below; (4) the quality of the CP and the level of OC were no longer sufficient to support a two-notch uplift for high recovery prospects; (5) the relative amortisation profile of the CH and CP moved adversely; or (6) volatility in the financial markets caused the currently estimated market value spreads to increase.

The total amount of CH currently outstanding under the Programme is EUR 1.7 billion. As at 30 June 2023, the aggregate balance of the mortgages in the CP was EUR 2.4 billion, resulting in total OC of 46.9%.

As of March 2023, the registered CP comprised residential mortgage loans with a weighted-average (WA) current unindexed loan-to-value ratio of 61.0%. The pool is concentrated in Andalusia (98.5%), Cajasur’s main area of business activity. The pool has a seasoning of 4.8 years.

Most of the CP (61.6%) pays a fixed rate while 9.3% of the liabilities pay a fixed coupon. As is typical in Spanish CH, there are no swaps for the benefit of the CH holders. DBRS Morningstar accounted for this in its cash flow analysis.

The WA life of the assets is 10.1 years while that of the CBs is 3.5 years. The resulting asset-liability maturity mismatch is mitigated by the available OC.

All assets and liabilities are denominated in euros. As such, investors are not currently exposed to any foreign-exchange risk.

DBRS Morningstar assessed the LSF related to the Programme as “Strong” according to its rating methodology. For more information, please refer to the DBRS Morningstar’s “Spanish Mortgage Covered Bonds: Legal and Structuring Framework Review” commentary, which is available at www.dbrsmorningstar.com.

DBRS Morningstar’s credit rating on the CH ES0413464027 addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are listed at the end of this press release.

DBRS Morningstar’s credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

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/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit rating is: Global Methodology for Rating and Monitoring Covered Bonds (8 May 2023), https://www.dbrsmorningstar.com/research/413651/global-methodology-for-rating-and-monitoring-covered-bonds.

Other methodologies referenced in this transaction are listed at the end of this press release.

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent credit rating action.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit 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.

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 credit rating include stratification tables on the CP as at 31 March 2023 provided by Cajasur.

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

At the time of the initial credit rating, DBRS Morningstar was not supplied with third-party assessments. However, this did not impact the credit rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing this credit rating to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the credit rating process.

The last credit rating action on this transaction took place on 8 July 2022, when DBRS Morningstar upgraded its rating on the CH ES0413464027 to AA (high) from AA.

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

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication/. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

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

Lead Analyst: Tomas Rodriguez-Vigil Junco, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 19 July 2019

DBRS Ratings GmbH, Sucursal en España
Paseo de la Castellana 81
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 credit 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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