Morningstar DBRS Confirms Credit Ratings on Two CaixaBank RMBS Transactions

DBRS Ratings GmbH (Morningstar DBRS) confirmed the credit ratings on the notes issued by two CaixaBank RMBS transactions as follows:

CaixaBank RMBS 1, FT (CB1)
-- Class A Notes at AA (sf)
-- Class B Notes at A (low) (sf)

CaixaBank RMBS 2, FT (CB2)
-- Class A Notes at AA (sf)
-- Class B Notes at BB (high) (sf)

The credit 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 credit 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 credit 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 2023 and January 2024 payment dates for CB1 and CB2, 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 credit rating levels.

CB1 and CB2 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
CB1: As of December 2023, loans more than 90 days in arrears slightly increased to 1.6% from 1.4% of the outstanding performing portfolio collateral balance at the time of the last annual review. The cumulative default ratio was at 1.6% of the original portfolio balance (versus 1.4% in December 2022).

CB2: As of January 2024, loans more than 90 days in arrears trended up to 2.1% from 1.7% of the outstanding performing portfolio collateral balance. The cumulative default ratio was at 1.5% of the original portfolio balance (versus 1.4% in January 2023).

PORTFOLIO ASUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted a loan-by-loan analysis on the remaining receivables, considering updated multicredito balances, and updated its base case PD and LGD assumptions to 1.7% and 9.5% (from 2.4% and 10.6%), respectively, for CB1, and to 1.7% and 8.6% (from 2.1% and 9.0%), respectively, for CB2.

CREDIT ENHANCEMENT
CB1: As of the December 2023 payment date, credit enhancement to the Class A Notes was 26.6%, up from 23.3% one year ago. The Class A Notes benefits 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 levels of EUR 556.7 million, slightly below 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.

CB2: As of the January 2024 payment date, credit enhancement to the Class A Notes was 24.4%, up from 22.3% 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 92.4 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 Morningstar DBRS 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, Morningstar DBRS 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 Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology.

Morningstar DBRS’ credit ratings on the rated notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

Morningstar DBRS’ credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction documents 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, GOVERNANCE CONSIDERATIONS
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” at https://dbrs.morningstar.com/research/427030.

Morningstar DBRS analysed the transaction structures in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is “Master European Structured Finance Surveillance Methodology” (11 December 2023), https://dbrs.morningstar.com/research/425148.

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

The credit rating on the Class B Notes for CB2 materially deviates from the lower rating implied by the quantitative model. Morningstar DBRS considers a material deviation to be a rating difference of three or more notches between the assigned credit rating and the credit rating implied by a quantitative model that is a substantial component of a rating methodology; in this case, there is no hedging agreement in place for the transaction, and given the mismatch between the rated notes paying floating interest rates and currently about 36% of the portfolio paying fixed interest rates, the Class B Notes are highly exposed to further interest rate upward stresses as per Morningstar DBRS´ “Interest Rate Stresses for European Structured Finance Transactions” methodology, especially when combined with low prepayment stressed scenarios. At this point, Morningstar DBRS considers these scenarios to be unlikely and will continue to closely monitor the transaction performance to assess if this continues to be commensurate with a BB (high) (sf) rating.

Morningstar DBRS 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 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://dbrs.morningstar.com/research/421590.

The sources of data and information used for these credit ratings include reports and information provided by the Management Company, CaixaBank Titulización, Sociedad Gestora de Fondos de Titulización, Sociedad Anonima Unipersonal, and loan-level data provided by the European DataWarehouse GmbH.

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

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

Morningstar DBRS considers the data and information available to it for the purpose of providing these credit ratings 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 actions on these transactions took place on 17 February 2023, when Morningstar DBRS confirmed its credit rating on the Class A Notes for CB1 at AA (sf), upgraded its credit rating on the Class B Notes for CB1 to A (low) (sf) from BBB (low) (sf), upgraded its credit rating on the Class A Notes for CB2 to AA (sf) from AA (low) (sf), and confirmed its credit rating on the Class B Notes for CB2 at BB (high) (sf).

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

To assess the impact of changing the transaction parameters on the credit ratings, Morningstar DBRS considered the following stress scenarios as compared with the parameters used to determine the credit ratings (the base case):

CB1:
-- Morningstar DBRS 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 1.7% and 9.5%, respectively.
-- The risk sensitivity overview below illustrates the credit 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 credit 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 credit 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 credit rating of the Class A Notes would be expected to remain at AA (sf).

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

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

CB2:
-- Morningstar DBRS 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 1.7% and 8.6%, respectively.
-- The risk sensitivity overview below illustrates the credit 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 credit 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 credit rating of the Class A Notes would be expected to be downgraded to AA (low) (sf) from 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 be downgraded to A (high) (sf) from AA (sf).

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

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating below B (low) (sf)
-- 50% increase in LGD, expected credit rating below B (low) (sf)
-- 25% increase in PD, expected credit rating below B (low) (sf)
-- 50% increase in PD, expected credit rating below B (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating below B (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating below B (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating below B (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating below B (low) (sf)

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: Helvia Meana, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
CB1 Initial Rating Date: 23 February 2016
CB2 Initial Rating Date: 20 March 2017

DBRS Ratings GmbH
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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 these transactions can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (11 December 2023),
https://dbrs.morningstar.com/research/425148
-- Legal Criteria for European Structured Finance Transactions (30 June 2023), https://dbrs.morningstar.com/research/416730
-- European RMBS Insight Methodology (27 March 2023) and European RMBS Insight Model version 6.0.2.0, https://dbrs.morningstar.com/research/411634
-- European RMBS Insight: Spanish Addendum (1 March 2023), https://dbrs.morningstar.com/research/410420
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023), https://dbrs.morningstar.com/research/420572
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023), https://dbrs.morningstar.com/research/420602
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024), https://dbrs.morningstar.com/research/427030

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].