DBRS Morningstar Takes Credit Rating Actions on IM BCC Cajamar PYME 4 FT Following Reporting Error

DBRS Ratings GmbH (DBRS Morningstar) took the following credit rating actions on the notes issued by IM BCC Cajamar PYME 4 FT (CJP4):

-- Series A Notes confirmed at AAA (sf)
-- Series B Notes downgraded to CCC (low) (sf) from CCC (high) (sf)

The credit rating on the Series A Notes addresses the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date in July 2064. The credit rating on the Series B Notes addresses the ultimate payment of interest and principal on or before the legal final maturity date.

On 28 September 2023, Intermoney Titulización S.G.F.T., S.A. (the management company) notified DBRS Morningstar about a reporting error on the interest rate type that affected 6,302 loans (42.3% of the current outstanding portfolio). This error was amended on the pool cut-off date of 31st August 2023, and prompted the downgrade of the credit rating on the Series B Notes.

Following the update to the interest rate type in the portfolio composition, DBRS Morningstar increased the amount of fixed portion of the portfolio in its cash flow analysis, with a negative impact on increased interest rate scenarios given the floating payments on the notes and the unhedged transaction, which resulted in a downgrade of the Series B Notes.

In addition to the aforementioned error, the credit rating actions follow an annual review of the transaction and are also based on the following analytical considerations:
-- The portfolio performance, in terms of the level of delinquencies and defaults, as of the September 2023 payment date;
-- 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 notes to cover the expected losses at their respective credit rating levels;

The transaction is a cash flow securitisation collateralised by a portfolio of secured and unsecured loans originated and serviced by Cajamar Caja Rural S.C.C. (Cajamar) to small and medium-size enterprises (SME) and self-employed individuals based in Spain. The transaction closed in March 2022.

PORTFOLIO PERFORMANCE
The portfolio is performing within DBRS Morningstar’s expectations. As of the September 2023 payment date, the 90+ day delinquency ratio represented 1.0% of the current balance. The cumulative default ratio stood at 0.5%.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and updated its default rate and recovery assumptions on the outstanding portfolio to 41.9% and 27.3%, respectively, at the AAA (sf) credit rating level, and to 10.1% and 40.0%, respectively, at the CCC (low) (sf) credit rating level. DBRS Morningstar updated its one-year base case PD to 3.4%, based on the updated portfolio composition of the transaction.

CREDIT ENHANCEMENT
The credit enhancement available to the notes has increased as the transaction deleverages. As of the September 2023 payment date, the credit enhancement available to the Series A Notes and Series B Notes increased to 39.1% and 4.7%, respectively, compared with 33.0% and 4.0%, respectively, as of the last annual review.

Credit enhancement is provided by the subordination of the Series B Notes and a reserve fund, which was funded at closing through a subordinated loan. The reserve fund is available to cover senior fees and interest and principal payments on the Series A Notes and, once the Series A Notes have fully amortised, interest and principal payments on the Series B Notes. The reserve fund does not amortise through the life of the transaction and remains at its target level of EUR 27.0 million.

Interest and principal payments on the Series B Notes are subordinated to the interest and principal payments on the Series A Notes.

Banco Santander S.A. (Santander) acts as the account bank for the transaction. Based on the account bank reference rating of A (high) on Santander (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 transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the credit ratings assigned to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar’s credit rating on the Series A Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

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 defaults to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the term 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 analysed the transaction structure 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” (6 October 2023); https://www.dbrsmorningstar.com/research/421602/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.

DBRS Morningstar received notification of an error affecting the interest rate type reported for 6,302 loans included in the portfolio on 28 September 2023. A review of any other transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent credit rating actions.

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/421590.

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.

The sources of data and information used for these credit ratings include reports and information provided by the Management Company, Intermoney Titulización S.G.F.T., S.A., and loan-by-loan data from 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. 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 credit rating process.

The last credit rating action on this transaction took place on 21 March 2023, when DBRS Morningstar upgraded its credit ratings on the Series A and Series B Notes to AAA (sf) and CCC (high) (sf), respectively, from AA (sf) and CCC (low) (sf), respectively.

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 credit 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 3.4%, a 10% increase of the base case and a 20% increase of the base-case PD.
-- Recovery Rates Used: Base-case recovery rate of 27.3% at the AAA (sf) rating level and 40.0% at the CCC (low) (sf) rating level, for the Series A Notes and Series B Notes, respectively, and a 10% and 20% decrease in the base-case recovery rates. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery-rate levels.

DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20%, ceteris paribus, would lead to a downgrade of the Series A Notes to AA (high) (sf) and a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would also lead to a downgrade of the Series A Notes to AA (high) (sf). A scenario combining both a hypothetical increase in the PD by 10% and a hypothetical decrease in the recovery rate by 10%, would also lead to a downgrade of the Series A Notes to AA (high) (sf).

For the Series B Notes, DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20%, ceteris paribus, would lead to a downgrade of the Series B Notes to CC (sf), and a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a downgrade of the Series B Notes to CC (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%, ceteris paribus, would lead to a downgrade of the Series B Notes to CC (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 Date: 15 March 2022

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.

-- Rating CLOs Backed by Loans to European SMEs (6 October 2023) and SME Diversity Model 2.6.1.3, https://www.dbrsmorningstar.com/research/421602/rating-clos-backed-by-loans-to-european-smes.
-- European RMBS Insight Methodology (27 March 2023),
https://www.dbrsmorningstar.com/research/411634/european-rmbs-insight-methodology.
-- European RMBS Insight: Spanish Addendum (1 March 2023),
https://www.dbrsmorningstar.com/research/410420/european-rmbs-insight-spanish-addendum.
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023),
https://www.dbrsmorningstar.com/research/420602/interest-rate-stresses-for-european-structured-finance-transactions.
-- Cash Flow Assumptions for Corporate Credit Securitizations (7 February 2023), https://www.dbrsmorningstar.com/research/409499/cash-flow-assumptions-for-corporate-credit-securitizations.
-- Rating CLOs and CDOs of Large Corporate Credit (6 October 2023),
https://www.dbrsmorningstar.com/research/421604/rating-clos-and-cdos-of-large-corporate-credit.
-- Legal Criteria for European Structured Finance Transactions (30 June 2023),
https://www.dbrsmorningstar.com/research/416730/legal-criteria-for-european-structured-finance-transactions.
-- Master European Structured Finance Surveillance Methodology (6 October 2023),
https://www.dbrsmorningstar.com/research/421598/master-european-structured-finance-surveillance-methodology
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023), https://www.dbrsmorningstar.com/research/420572/operational-risk-assessment-for-european-structured-finance-servicers.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (4 July 2023),
https://www.dbrsmorningstar.com/research/416784/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].