Morningstar DBRS Upgrades Credit Ratings on Notes Issued by IM BCC Capital 1, FT

DBRS Ratings GmbH (Morningstar DBRS) upgraded its credit ratings on the Class A, Class B, and Class C Notes issued by IM BCC Capital 1, FT to AAA (sf), A (high) (sf), and BBB (high) (sf), respectively, from AA (high) (sf), A (low) (sf), and BBB (low) (sf), respectively.

The credit rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal on or before the legal maturity date in April 2037. The credit ratings on the Class B and Class C Notes address the ultimate payment of interest and principal on or before the legal 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 the level of delinquencies and defaults, as of the April 2024 payment date;
-- The one-year base case probability of default (PD) and the 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 static cash flow securitisation collateralised by a portfolio of term loans originated and serviced by Cajamar Caja Rural, S.C.C., granted to small and medium-size enterprises (SMEs) and self-employed individuals based in Spain. The transaction closed in December 2018.

PORTFOLIO PERFORMANCE
The transaction's performance has been stable since closing. As of 31 March 2024, the overall portfolio consisted of an aggregate principal balance of EUR 143.7 million. The current cumulative default ratio was at 0.85%, up from 0.73% at the time of the last annual review. The 30- to 60-day and 60- to 90-day delinquency ratios stood at 0.09% and 0.07%, respectively, down from 0.18% and 0.17% last year, respectively.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS maintained the one-year base case PD at 2.1% and updated its lifetime default and recovery assumptions on the outstanding portfolio to 47.1% and 33.1%, respectively, at the AAA (sf) credit rating level; 32.1% and 39.0%, respectively, at the A (high) (sf) credit rating level; and 22.9% and 40.8%, respectively, at the BBB (high) (sf) credit rating level.

CREDIT ENHANCEMENT
The Class A to Class E Notes amortise pro rata, unless certain sequential amortisation events have occurred to date. The credit enhancement slightly increased year over year to 43.4% from 41.3%, 19.6% from 17.3%, and 12.9% from 10.8% for the Class A, Class B, and Class C Notes, respectively. The credit enhancement for the rated notes is provided by the subordination of the junior notes and a reserve fund.

The reserve fund is currently funded at EUR 9.5 million, after reaching its floor on the April 2021 payment date, and is available to cover shortfalls in senior expenses and interest and principal on the Class A to Class D Notes.

The structure also benefits from a commingling reserve account funded at closing to mitigate any potential disruptions in the payment of senior expenses and interest on the Class A Notes. This is currently funded at EUR 0.45 million.

Banco Santander SA (Santander) acts as the account bank for the transaction. Based on Morningstar DBRS' reference rating of A (high) on Santander (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 structure, 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 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, AND 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 ratings is the "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 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 transaction reports and information provided by the management company, InterMoney Titulización SGFT, S.A., 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 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 this transaction took place on 7 June 2023, when Morningstar DBRS upgraded its credit rating on the Class B and Class C Notes to A (low) (sf) and BBB (low) (sf), respectively, from BBB (low) (sf) and BB (low) (sf), respectively, and confirmed its credit rating on the Class A Notes at AA (high) (sf).

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

Sensitivity Analysis: 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 2.1%, a 10% and 20% increase on the base case PD.
-- Recovery Rates Used: Base-case recovery rate 33.1% at the AAA (sf), 39.0% at the A (high) (sf), and 40.8% at the BBB (high) (sf) stress levels, a 10% and 20% decrease in the base-case recovery rate.

In relation to the Class A Notes, Morningstar DBRS concludes that a hypothetical increase in the base case PD by 20%, ceteris paribus, would lead to a downgrade on the Class A Notes to AA (high) (sf). A hypothetical decrease in the recovery rate by 20%, ceteris paribus, would also lead to a downgrade on the Class 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 on the Class A Notes to AA (high) (sf).

With regard to the Class B Notes, Morningstar DBRS concludes that a hypothetical increase in the base case PD by 20%, ceteris paribus, would lead to a confirmation on the Class B Notes at A (high) (sf). A hypothetical decrease in the recovery rate by 20%, ceteris paribus, would also lead to a confirmation on the Class B Notes at A (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 confirmation on the Class B Notes at A (high) (sf).

Finally, for the Class C Notes, Morningstar DBRS concludes that a hypothetical increase in the base case PD by 20%, ceteris paribus, would lead to a confirmation on the Class C Notes at BBB (high) (sf). A hypothetical decrease in the recovery rate by 20%, ceteris paribus, would also lead to a confirmation on the Class C Notes at BBB (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 confirmation on the Class C Notes at BBB (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: Baran Cetin, Senior Analyst
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 10 December 2018

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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 SME Diversity Model 2.6.1.4,
https://dbrs.morningstar.com/research/428543
-- European RMBS Insight Methodology (25 March 2024),
https://dbrs.morningstar.com/research/430103
-- 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].