Morningstar DBRS Confirms AA (high) Credit Rating on Cajasur Banco S.A. Cédulas Hipotecarias

DBRS Ratings GmbH (Morningstar DBRS) confirmed its AA (high) credit rating on the Cédulas Hipotecarias (CH; the Spanish Mortgage Covered Bonds) with ISIN ES0413464027 issued under the Cajasur Banco S.A. Covered Bonds (Cédulas Hipotecarias - Mortgages) programme (the Programme). This credit rating action follows the completion of a full review of the Programme.

As of today, there are two series of CH under the Programme, totalling an outstanding nominal amount of EUR 1.7 billion.

The credit rating reflects the following analytical considerations:

-- A Covered Bonds Attachment Point (CBAP) of "A (high)". Cajasur Banco S.A. (Cajasur) is the Issuer and Reference Entity for the Programme. There is no Critical Obligations Rating associated with the Reference Entity, but Morningstar DBRS classifies Spain as a jurisdiction in which covered bonds are a particularly important funding instrument. As such, the CBAP is set at the level of the Issuer Rating plus one notch.
-- A legal and structuring framework (LSF) assessment of "Strong" associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of BBB (low), 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 38% which is considered persistent based on historically observed levels and information from the Issuer. Morningstar DBRS gives full credit to such level in accordance with its principal methodology. Such level is not subject to a haircut as Morningstar DBRS considers it to be persistent based on historically observed levels.
-- The sovereign rating of the Kingdom of Spain, rated "A" with a Positive trend by Morningstar DBRS, as of the date of this rating action.

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 rating.

In addition, everything else being equal, the CH credit ratings would be downgraded if any of the following occured: (1) the CPCA was downgraded below BBB (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 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.

The total amount of CH currently outstanding under the programme is EUR 1.7 billion. As at 31 March 2024, the aggregate balance of the mortgages in the CP was EUR 2.3 billion, resulting in a total OC of 38.0%.

As of March 2024, the registered CP comprised residential mortgage loans with a weighted-average current unindexed loan-to-value ratio of 59.5%. The pool is concentrated in Andalusia (98.5%), Cajasur's main area of business activity. The pool has a seasoning of 5.4 years.

Most of the CP (63%) pays a fixed rate, while 9.3% of the liabilities pay a fixed coupon. As is usual in Spanish CH, there are no swaps for the benefit of the CH holders. This has been accounted for in Morningstar DBRS's cash flow analysis.

As of June 2024, the Morningstar DBRS-calculated weighted-average life of the assets is 13.1 years, while that of the covered bonds is 2.6 years. The resulting asset-liability maturity mismatch is mitigated by the available OC.

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

Morningstar DBRS has assessed the LSF related to the Programme as "Strong" according to its rating methodology. For more information, please refer to the Morningstar DBRS' "Spanish Mortgage Covered Bonds: Legal and Structuring Framework Review" commentary, which is available at www.dbrsmorningstar.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, GOVERNANCE CONSIDERATIONS
Credit rating actions on Cajasur are likely to have an impact on this credit rating.

Environmental (E) Factors
There were no Environmental factor(s) that had a relevant or significant effect on the credit analysis.

Social (S) Factors
There were no Social factor(s) that had a relevant or significant effect on the credit analysis.

Governance (G) Factors
There were no Governance factor(s) that had a relevant or significant 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, https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria:-approach-to-environmental,-social,-and-governance-risk-factors-in-credit-ratings.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is the Global Methodology for Rating and Monitoring Covered Bonds (02 April 2024) https://dbrs.morningstar.com/research/430636/global-methodology-for-rating-and-monitoring-covered-bonds

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 data and information used for these credit ratings include CP stratification tables as at 31 March 2024.

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

At the time of the initial credit rating, 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 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 July 2023, when Morningstar DBRS confirmed its rating on the CH ES0413464027 at AA (high).

The lead analyst responsibilities for this transaction have been transferred to Marcos Meier.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on www.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: Marcos Meier, Assistant Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 19 July 2019

DBRS Ratings GmbH, Sucursal en España
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28046 Madrid, Spain
Tel. +34 (91) 903 6500

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.

-- Global Methodology for Rating and Monitoring Covered Bonds (2 April 2024),
https://dbrs.morningstar.com/research/430636
-- Global Methodology for Rating Banks and Banking Organisations (4 June 2024),
https://dbrs.morningstar.com/research/433881
-- Legal Criteria for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435165
-- European RMBS Insight Methodology (25 March 2024) and European RMBS Insight model v.8.0.0.1,
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 (28 June 2024),
https://dbrs.morningstar.com/research/435278
-- 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.