Morningstar DBRS Upgrades Credit Rating on Caixabank Leasings 3, FT

DBRS Ratings GmbH (Morningstar DBRS) upgraded to BB (high) (sf) from BB (low) (sf) its credit rating on the Series B Notes issued by Caixabank Leasings 3, FT (the Issuer).

The credit rating on the Series B Notes addresses the ultimate payment of interest and principal on or before the legal final maturity date in December 2039.

The credit rating upgrade follows an annual review of the transaction and is based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the June 2024 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement to the Series B Notes to cover the expected losses at the BB (high) (sf) credit rating level.

The transaction is a static securitisation of Spanish lease contracts granted by CaixaBank, S.A. (CaixaBank) to enterprises and self-employed individuals based in Spain. CaixaBank also acts as the servicer of the portfolio. At closing, the EUR 1,830.0 million portfolio consisted of equipment leases (38.9%), vehicle leases (36.5%), and real estate leases (24.6%). The transaction closed in June 2019.

PORTFOLIO PERFORMANCE
As of 31 May 2024, loans that were up to 30 days delinquent represented 0.5% of the outstanding collateral balance, with no loans 30 to 90 days delinquent. Loans more than 90 days delinquent amounted to 0.8%. Gross cumulative defaults, defined as receivables in 12 or more months of arrears, amounted to 0.8% of the original portfolio balance, with cumulative recoveries of 27.0% to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base case PD and LGD assumptions to 5.7% and 56.0%, respectively, compared to 6.3% and 55.5%, respectively, at the time of the last annual review 12 months ago.

CREDIT ENHANCEMENT
Following the full repayment of the Series A Notes, now the cash reserve provides credit enhancement to the Series B Notes. As of the June 2024 payment date, credit enhancement to the Series B Notes decreased slightly to 5.4% from 5.5% at the time of the last annual review, due to the amortization of the cash reserve, the only source of credit enhancement to the Series B Notes.

The transaction benefits from an amortising cash reserve available to cover senior expenses and all payments due on the senior-most class of notes outstanding at the time. The cash reserve was funded to EUR 89.7 million at closing through a subordinated loan granted by CaixaBank, and, starting from the September 2020 payment date, has been amortising to its target level of 4.9% of the outstanding principal balance of the notes. As of the June 2024 payment date, the cash reserve was at its target balance of EUR 12.0 million.

CaixaBank acts as the account bank for the transaction. Based on the account bank reference credit rating of A (high) on CaixaBank (which is one notch below the Morningstar DBRS public 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 applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS's 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 Factors in Credit Ratings" at https://dbrs.morningstar.com/research/437781.

Morningstar DBRS analysed the transaction structure in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is the "Master European Structured Finance Surveillance Methodology" (6 August 2024), https://dbrs.morningstar.com/research/437540.

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 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 Credit Ratings on Other Morningstar DBRS Credit Ratings" of the "Global Methodology for Rating Sovereign Governments" at: https://dbrs.morningstar.com/research/436000.

The sources of data and information used for this credit rating include investor reports and information provided by CaixaBank Titulización, S.G.F.T., S.A.U. (the Management Company), 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 rating, 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 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 3 April 2024 Morningstar DBRS discontinued its AAA (sf) credit rating on the Series A Notes following their full repayment. Prior to that, on 7 September 2023, 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 BB (low) (sf).

The lead analyst responsibilities for this transaction have been transferred to Shalva Beshia.

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

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit rating, Morningstar DBRS considered the following stress scenarios as compared with the parameters used to determine the credit rating (the Base Case):

-- 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 5.7% and 56.0%, respectively.

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

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Shalva Beshia, Assistant Vice President
Rating Committee Chair: Mark Wilder, Senior Vice President
Initial Rating Date: 18 June 2019

DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
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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.

-- Master European Structured Finance Surveillance Methodology (6 August 2024),
https://dbrs.morningstar.com/research/437540.
-- Rating European Consumer and Commercial Asset-Backed Securitisations (22 August 2024),
https://dbrs.morningstar.com/research/438224
-- Rating European Structured Finance Transactions Methodology (25 June 2024),
https://dbrs.morningstar.com/research/434970.
-- Legal Criteria for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435165.
-- 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 (20 June 2024) and SME Diversity Model v2.7.1.4, https://dbrs.morningstar.com/research/434775.
-- Operational Risk Assessment for European Structured Finance Servicers (6 August 2024),
https://dbrs.morningstar.com/research/437543.
-- Interest Rate Stresses for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435278.
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024), https://dbrs.morningstar.com/research/437781.

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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.