Press Release

DBRS Morningstar Upgrades and Confirms Credit Ratings on Three CaixaBank PYMES Transactions

Structured Credit

July 13, 2023

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

CaixaBank PYMES 10, FT (CB10)
-- Series A Notes upgraded to AAA (sf) from AA (high) (sf)
-- Series B Notes confirmed at CCC (sf)

CaixaBank PYMES 11, FT (CB11)
-- Series A Notes confirmed at AA (high) (sf)
-- Series B Notes upgraded to BB (low) (sf) from B (sf)

CaixaBank PYMES 12, FT (CB12)
-- Series A Notes confirmed at AA (high) (sf)
-- Series B Notes upgraded to BB (high) (sf) from BB (low) (sf)

The credit 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 (October 2051 for CB10, April 2052 for CB11, and September 2062 for CB12).

The credit 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 credit 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 (April for CB10 and CB11 and June for CB12);
-- 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 credit rating levels.

CB10, CB11, and CB12 are securitisations of secured and unsecured loans, and drawdowns of secured and unsecured lines of credit for CB10 and CB11, 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 2018, 2019, and 2020, respectively.

PORTFOLIO PERFORMANCE
CB10
As of the April 2023 payment date, loans more than three months delinquent represented 4.0% of the portfolio balance, up from 3.1% at the last annual review. Gross cumulative defaults amounted to 1.7% of the original collateral balance, up from 1.6%.

CB11
As of the April 2023 payment date, loans more than three months delinquent represented 2.2% of the portfolio balance, up from 1.7% at the last annual review. Gross cumulative defaults increased to 1.4% of the original collateral balance, up from 1.1%.

CB12
As of the June 2023 payment date, loans more than three months delinquent represented 2.0% of the portfolio balance, up from 1.3% at the last annual review. Gross cumulative defaults increased to 0.7% of the original collateral balance, up from 0.3%. Receivables are classified as defaulted after 12 months of arrears 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 CB10, DBRS Morningstar updated the portfolio’s one-year base-case PD assumption to 2.5% and the weighted-average recovery rate to 44.6% at the AAA (sf) credit rating level and to 56.2% at the CCC (sf) credit rating level.

For CB11, DBRS Morningstar updated the portfolio’s one-year base-case PD assumption to 1.8% and the weighted-average recovery rate to 31.7% at the AA (high) (sf) credit rating level and to 42.3% at the BB (low) (sf) credit rating level.

For CB12, DBRS Morningstar updated the portfolio’s one-year base-case PD assumption to 1.4%, and the weighted-average recovery rate to 22.9% at the AA (high) (sf) credit rating level and to 31.0% at the BB (high) (sf) credit 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%, 4.7%, and 5.0% of the outstanding balance of the notes for CB10, CB11, and CB12, respectively) and are currently slightly above their target levels at EUR 32.4 million for CB10, EUR 44.8 million for CB11, and EUR 59.9 million for CB12.

CB10
As of the April 2023 payment date, the credit enhancement to the Series A Notes was 77.7%, up from 59.2% at the last annual review; the credit enhancement to the Series B Notes was 4.5%, up from 4.4%.

CB11
As of the April 2023 payment date, the credit enhancement to the Series A Notes was 42.6%, up from 33.4% at the last annual review; the credit enhancement to the Series B Notes was 5.2%, up from 5.1%.

CB12
As of the June 2023 payment date, the credit enhancement to the Series A Notes was 38.1%, up from 27.8% at the last annual review; the credit enhancement to the Series B Notes was 5.5%, up from 5.4%.

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 credit ratings assigned to the rated notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar’s credit ratings on the notes address 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 ratings do not address nonpayment 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.

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 credit ratings is: “Rating CLOs Backed by Loans to European SMEs” (10 June 2022), https://www.dbrsmorningstar.com/research/398252/rating-clos-backed-by-loans-to-european-smes.

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 transactions in accordance with the surveillance section of the principal methodology.

A review of the transactions’ 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 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 credit 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 credit ratings, DBRS Morningstar was supplied with third-party assessments for the three transactions. However, this did not impact the credit rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these credit 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 credit rating action on CB10 and CB11 took place on 17 August 2022, when DBRS Morningstar confirmed the credit ratings on the Series A and B Notes of CB10 at AA (high) (sf) and CCC (sf), respectively, and upgraded the credit ratings on the Series A and B Notes of CB11 to AA (high) (sf) from AA (sf), and to B (sf) from CCC (high) (sf), respectively. The last credit rating action on CB12 took place on 13 July 2022, when DBRS Morningstar upgraded the credit rating on the Series A Notes to AA (high) (sf) from AA (sf) and upgraded the credit rating on the Series B Notes to BB (low) (sf) from B (high) (sf).

Information regarding DBRS Morningstar credit 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 credit ratings (the Base Case):

-- PD Rates Used: Base-Case PD of 2.5%, 1.8%, and 1.4% for CB10, CB11, and CB12, respectively, a 10.0% and 20.0% increase on the Base-Case PD.
-- Recovery Rates Used: Base-Case Recovery Rates of 40.6% at the AAA (sf) and 56.2% at the CCC (sf) stress levels for CB10, 31.7% at AA (high) (sf) and 42.3% at the BB (low) (sf) stress levels for CB11, and 22.9% at the AA (high) (sf) and 31.0% at the BB (high) (sf) stress levels for CB12, a 10.0% and 20.0% 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.

CB10
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 AAA (sf) and a downgrade of the Series B Notes to CC (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 AAA (sf) and a downgrade of the Series B Notes to CC (sf) from CCC (sf).

CB11
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 confirmation of the Series B Notes at BB (low) (sf). A hypothetical decrease of the Base-Case recovery rate by 20%, ceteris paribus, would not have an impact on the ratings on 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 confirmation of the Series B Notes at BB (low) (sf).

CB12
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 confirmation of the Series B Notes at BB (high) (sf). A hypothetical decrease of the Base-Case recovery rate by 20%, ceteris paribus, would not have an impact on the ratings on 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 confirmation of the Series B Notes at 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://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.

These credit 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:
CB10: 20 November 2018
CB11: 21 November 2019
CB12: 12 November 2020

DBRS Ratings GmbH
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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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