Press Release

Morningstar DBRS Confirms AAA Credit Ratings on Caixabank S.A. Covered Bonds

Covered Bonds

January 12, 2024

DBRS Ratings GmbH (Morningstar DBRS) confirmed its AAA credit ratings on the outstanding Cédulas Hipotecarias (CH, Spanish mortgage covered bonds) issued under the Caixabank S.A. Covered Bonds programme (Caixabank CH or the Programme). This rating action follows the completion of a full review of the credit ratings.

At the same time, Morningstar DBRS discontinued its credit rating on the Cedulas Hipotecarias - ES0440609131, which was amortised early on 4 December 2023.

The credit ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of AA (low), which is Caixabank’s Long Term Critical Obligations Rating. Caixabank is the Issuer and Reference Entity (RE) for the Programme.
-- A Legal and Structuring Framework (LSF) Assessment of “Strong” associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of A (low), which is the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L).
-- An LSF-L of AA (high).
-- A one-notch uplift for high recovery prospects.
-- A level of overcollateralisation (OC) of 62.6% to which Morningstar DBRS gives credit, which is the minimum level observed in the last 12 months adjusted by a scaling factor of 0.85.
-- The sovereign rating of the Kingdom of Spain, rated “A” with a Stable trend by Morningstar DBRS, as of the date of this press release.

Morningstar DBRS analysed the transaction with 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 CP.

Everything else being 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 CB ratings. In addition, all else unchanged, the CH ratings would be downgraded if any of the following occurred: (1) the CPCA was downgraded below A (low); (2) the sovereign rating of the Kingdom of Spain was downgraded below A (low); (3) the LSF assessment associated with the Programme was downgraded; (4) the quality of the CP and the level of OC were no longer sufficient to support a one-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 outstanding amount of CH under the programme is currently EUR 57.0 billion. As of September 2023, the total outstanding amount of CH under the programme was EUR 60.5 billion, while the assets in the CP amounted EUR 105.0 billion. This resulted in a total estimated OC of 73.6%.

Spanish CBs are backed by a specific portfolio of assets selected by the issuer. As of 30 September 2023, the CP comprised 1,540,142 mortgage loans, with a weighted-average (WA) current unindexed loan-to-value ratio of 45.6%. The pool is composed of residential loans (90.3%), commercial loans (7.3%), developers (1.3%), and land (0.2%). The remaining part of the portfolio (0.8%) corresponds to liquid assets to cover the net liquidity outflow of the CB programme over the next 180 days.

The CP is geographically diversified, with higher concentrations in Catalonia (23.2%), Madrid (20.7%), and Andalucia (14.6%). The pool is 113 months seasoned.

As is customary in the Spanish market, CH do not benefit from hedging agreements to cover the mismatch between the interest paid by the cover pool (61.1% floating rate linked to different indexes and resets) and the interest paid to the covered bondholders (68.5% floating rate linked to different indexes and resets). This risk is mitigated by the OC available and has been accounted for in Morningstar DBRS´s cash flow analysis.

The two foreign currency CH amount to a nominal of USD 966.2 million, equivalent to roughly EUR 912 million at the spot rate as of 30 September 2023 (or 1.5% of the CH outstanding). Of the loans, 0.2% were originated in a currency other than euros. Morningstar DBRS considers this exposure to be negligible and to be mitigated by the available OC.

The Morningstar DBRS-calculated WA life of the assets is approximately 9.7 years while that of the covered bonds is approximately four years. This generates an asset-liability mismatch that is mitigated by the available OC.

Morningstar DBRS has assessed the LSF related to the Programme as “Strong” according to its “Rating and Monitoring Covered Bonds” methodology. For more information, please refer to Morningstar DBRS’s “Spanish Mortgage Covered Bonds: Legal and Structuring Framework Review” commentary, available at dbrs.morningstar.com.

For further information on the Programme, please refer to the rating report at www.dbrsmorningstar.com.

Morningstar DBRS’ credit rating on the Issuer's covered bond series addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related Interest Payment Amounts and the related Principal Balance.

Morningstar DBRS’ credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

Morningstar DBRS’ long-term credit ratings provide opinions on risk of default. Morningstar DBRS 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, AND GOVERNANCE CONSIDERATIONS
Credit rating actions on the Issuer are likely to have an impact on this credit rating.
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the “Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings” (4 July 2023) at https://dbrs.morningstar.com/research/416784.

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://dbrs.morningstar.com/research/413651.

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

Morningstar DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the surveillance section of 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 Morningstar DBRS Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://dbrs.morningstar.com/research/421590.

The sources of data and information used for this credit rating include CP stratification tables as at 30 September 2023.

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

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

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

Morningstar DBRS 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 June 23, 2023, when Morningstar DBRS assigned an AAA credit rating to a new CB issuance.

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

For further information on Morningstar DBRS 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 Morningstar DBRS 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: Tomas Rodriguez-Vigil Junco, Vice President, Credit Ratings
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: January 20, 2016

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://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/278375.

For more information on this credit or on this industry, visit dbrs.morningstar.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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