Morningstar DBRS Upgrades and Confirms Credit Ratings on IM BCC Cajamar PYME 3 FT

DBRS Ratings GmbH (Morningstar DBRS) took the following credit rating actions on the notes issued by IM BCC Cajamar PYME 3 FT (CJP3):

-- Series A Notes confirmed at AAA (sf)
-- Series B Notes upgraded to BB (low) (sf) from B (low) (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 June 2057. The credit rating on the Series B Notes addresses the ultimate payment of interest and principal on or before the legal final maturity date.

The credit rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- The portfolio performance, in terms of level of delinquencies and defaults, as of the February 2024 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 (SMEs) and self-employed individuals based in Spain. The transaction closed in April 2021.

PORTFOLIO PERFORMANCE
The portfolio is performing within Morningstar DBRS’ expectations. As of February 2024 payment date, the 90-plus-day delinquency ratio was 0.99%, stable from 1.03% at the time of the last annual review. The cumulative defaults stood at 1.1% of the original balance.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS 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 39.1% and 30.1%, respectively, at the AAA (sf) credit rating level, and to 13.5% and 42.6%, respectively, at the BB (low) (sf) credit rating level. Morningstar DBRS updated its one-year base-case PD to 2.6%, based on the updated portfolio composition.

CREDIT ENHANCEMENT
The credit enhancement available to the notes has increased as the transaction deleverage. As of the February 2024 payment date, the credit enhancement available to the Series A Notes and Series B Notes increased to 68.4% and 7.9%, respectively, compared with 47.3% and 5.5%, respectively, one year ago.

Credit enhancement is provided by the subordination of the Series B Notes and the reserve fund. The reserve fund was funded at closing through a subordinated loan and is available to cover senior fees and interest and principal on the Series A Notes and, once the Series A Notes are fully amortised, interest and principal 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 30.0 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 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 structure, Morningstar DBRS considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the notes, as described in Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology.

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

Morningstar DBRS’ credit rating on the Notes does 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 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 rating is: “Rating CLOs Backed by Loans to European SMEs” (23 February 2024), https://dbrs.morningstar.com/research/428543.

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 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, Intermoney Titulización S.G.F.T., S.A., and loan-by-loan data from 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 credit 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 purposes 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 action on CJP3 took place on 21 March 2023, when Morningstar DBRS upgraded its credit rating on the Series A Notes to AAA (sf) from AA (high) (sf), and confirmed its credit rating on the series B Notes at B (low) (sf).

Information regarding Morningstar DBRS credit 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, Morningstar DBRS 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 2.6%, a 10% increase of the base case and a 20% increase of the base-case PD.
-- Recovery Rates Used: Base-case recovery rate of 30.1% at the AAA (sf) credit rating level and 42.6% at the BB (low) (sf) credit 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.

Morningstar DBRS 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 AAA (sf) and a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would also lead to a confirmation of the Series A Notes at AAA (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 confirmation of the Series A Notes at AAA (sf).

For the Series B Notes, Morningstar DBRS 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 B (high) (sf), and a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a downgrade of the Series B Notes to B (high) (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 B (high) (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
Initial Rating Date: 30 March 2021

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 this transaction can be found at:
https://dbrs.morningstar.com/about/methodologies.

-- Rating CLOs Backed by Loans to European SMEs (23 February 2024) and DBRS Morningstar SME Diversity Model v2.6.1.4,
https://dbrs.morningstar.com/research/428543
-- European RMBS Insight Methodology (27 March 2023)
https://dbrs.morningstar.com/research/411634
-- European RMBS Insight: Spanish Addendum (8 March 2024),
https://dbrs.morningstar.com/research/429109
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023), https://dbrs.morningstar.com/research/420602
-- Global Methodology for Rating CLOs and Corporate CDOs (23 February 2024), https://dbrs.morningstar.com/research/428544
-- Legal Criteria for European Structured Finance Transactions (30 June 2023), https://dbrs.morningstar.com/research/416730
-- Master European Structured Finance Surveillance Methodology (7 March 2024),
https://dbrs.morningstar.com/research/429051
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023), https://dbrs.morningstar.com/research/420572
-- 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].