Morningstar DBRS Confirms AA (high) Credit Ratings on Cajamar Caja Rural S.C.C. Covered Bonds (Cédulas Hipotecarias – Mortgages)

DBRS Ratings GmbH (Morningstar DBRS) confirmed its AA (high) credit ratings on the outstanding Spanish mortgage covered bonds (Cédulas Hipotecarias or CH) issued under the Cajamar Caja Rural S.C.C. (Cajamar or the Issuer) Covered Bonds programme (the Programme). This rating action follows the completion of a full review of the ratings.

The credit ratings reflect the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of BBB, which is one notch above Cajamar's Long-Term Senior Debt Rating. Cajamar 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 AA, which is the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L).
-- An LSF-L of AA (low).
-- A two-notch uplift for high recovery prospects.
-- A level of overcollateralisation (OC) of 23.6% 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 on the Kingdom of Spain, rated "A" with a Positive trend by Morningstar DBRS, as of the date of this press release.

Morningstar DBRS analysed the transaction using 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 cover pool (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 covered bonds ratings. In addition, all else unchanged, the CH ratings would be downgraded if any of the following occurred: (1) the CPCA was downgraded below AA; (2) the sovereign rating on 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 two-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.
This analysis does not consider the potential recovery uplift of up to two notches from the LSF-L that Morningstar DBRS may apply subject to the level of OC.

There are currently EUR 6.2 billion of CH outstanding under the programme, of which Morningstar DBRS publicly rates EUR 2.75 billion. As of 31 March 2024, the aggregate balance of mortgages in the CP was EUR 7.9 billion, which results in a total OC of 27.7%.

Spanish CBs are backed by a specific portfolio of assets selected by the issuer. As of 31 March 2024, the CP comprised 125,079 mortgage loans, with a weighted-average (WA) current unindexed loan-to-value ratio of 46.3% and a WA seasoning of 8.8 years. The pool is composed of residential loans (92.2%) and commercial loans (7.8%).

The CP is geographically diversified across Spain, with higher concentrations in Andalusia (30.3%), Valencia (25.7%), and Murcia (18.2%).

As is customary in the Spanish market, CHs do not benefit from hedging agreements to cover the mismatch between the interest paid by the CP (80.0% floating-rate linked to different indexes and resets) and the interest paid to the CB holders (87.9% fixed-rate). This risk is mitigated by the available OC and has been accounted for in Morningstar DBRS´ cash flow analysis.

All CP assets and CB are denominated in euros. As such, investors are not currently exposed to any foreign exchange risk.

The WA life of the assets is approximately 7.8 years while that of the CBs is 4.7 years. This maturity mismatch is mitigated by the available OC.

Morningstar DBRS has assessed the LSF related to the programme as "Strong" according to its "Global Methodology for Rating and Monitoring Covered Bonds". For more information, please refer to the commentaries, "Spanish covered Bonds: Legal and Structuring Framework Review", and "The Updated Law on Spanish Covered Bonds: Well Aligned with the European Directive", which can be found on https://dbrs.morningstar.com/.

Morningstar DBRS' credit ratings on the outstanding CB Series address 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 amount.

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 at https://dbrs.morningstar.com/research/427030.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is Global Methodology for Rating and Monitoring Covered Bonds (2 April 2024), https://dbrs.morningstar.com/research/430636.

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 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 Morningstar DBRS Credit Ratings" of the "Global Methodology for Rating Sovereign Governments" at: https://dbrs.morningstar.com/research/421590.

The sources of information used for this credit rating include loan-level information and stratification tables of the CP as of 31 March 2024 and historical performance data (quarterly default and recovery data from 2019 to 2024 for the residential and commercial pool) provided by the Issuer.

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 12 March 2024, when Morningstar DBRS assigned a AA (high) credit rating to CH XS2783787992.

The lead analyst responsibilities for this transaction have been transferred to Antonio Laudani.

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: Antonio Laudani, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 19 July 2013

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.

-- Global Methodology for Rating and Monitoring Covered Bonds (2 April 2024), https://dbrs.morningstar.com/research/430636
-- European RMBS Insight Methodology (25 March 2024) and European RMBS Insight model v 8.0.0.0, https://dbrs.morningstar.com/research/430103
-- Global Methodology for Rating Banks and Banking Organisations (15 April 2024), https://dbrs.morningstar.com/research/431155
-- European RMBS Insight: Spanish Addendum (8 March 2024),
https://dbrs.morningstar.com/research/429109.
-- Legal Criteria for European Structured Finance Transactions (30 June 2023), https://dbrs.morningstar.com/research/416730
-- 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
-- Rating CLOs Backed by Loans to European SMEs (23 February 2024) and SME Diversity Model v.2.6.1.4,
https://dbrs.morningstar.com/research/428543
-- Operational Risk Assessment for European Structured Finance Originators (7 March 2024),
https://dbrs.morningstar.com/research/429054
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023),
https://dbrs.morningstar.com/research/420572
-- Global Methodology for Rating Sovereign Governments (6 October 2023), https://dbrs.morningstar.com/research/421590
-- 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 info-DBRS@morningstar.com

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 info-DBRS@morningstar.com.