Morningstar DBRS Confirms Credit Ratings on TDA Sabadell RMBS 4, Fondo de Titulización

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit ratings on the bonds issued by TDA Sabadell RMBS 4, Fondo de Titulización (the Issuer) as follows:

-- Class A Notes at AA (sf)
-- Class B Notes at BBB (high) (sf)

The credit rating on the Class A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in November 2063. The credit rating on the Class B Notes addresses the ultimate payment of interest and principal on or before the legal final maturity date.

CREDIT RATING RATIONALE
The confirmations follow an annual review of the transaction and are based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the August 2024 payment date;
-- Portfolio default rate (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement to the Class A Notes to cover the expected losses assumed at the AA (sf) credit rating level and to the Class B Notes at BBB (high) (sf) once the Class A Notes are fully amortised and the reserve fund starts providing credit enhancement to the Class B Notes.

The transaction is a securitisation of Spanish residential mortgage loans originated and serviced by Banco de Sabadell, S.A. (Banco Sabadell) in Spain. The Issuer used the proceeds of the Class A and Class B Notes to fund the purchase of the mortgage portfolio from Banco Sabadell. In addition, Banco Sabadell provided a separate additional subordinated loan to fund both the initial expenses and the reserve fund.

PORTFOLIO PERFORMANCE
As of August 2024, loans two to three months in arrears represented 0.6% of the outstanding portfolio balance, unchanged from August 2023. The 90+ days delinquency ratio increased to 1.1% from 0.6% in the same period, and the cumulative default ratio increased to 1.0% since closing.

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 3.1% and 25.2%, respectively.

CREDIT ENHANCEMENT
As of the August 2024 payment date, credit enhancement to the Class A Notes was 23.5%, up from 21.2% as of the August 2023 payment date.

The Class A Notes benefit from EUR 570 million subordination of the Class B Notes and from the reserve fund, currently at its target level of EUR 157.1 million (4.9% of Class A and Class B Notes' outstanding balance), which is available to cover senior expenses as well as the interest and principal on the Class A Notes until they are repaid in full. The reserve fund will become available to the Class B Notes once the Class A Notes have been fully repaid. The reserve fund does not amortise if certain performance triggers are breached. The Class A Notes' principal payments are senior to the Class B Notes' interest payments in the pre-enforcement priority of payments.

Banco Sabadell acts as the account bank for the transaction. Based on the account bank's reference credit rating of "A" (which is one notch below its Morningstar DBRS Long Term Critical Obligations Rating (COR) of A (high)), 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 Banco Sabadell to be consistent with the AA (sf) credit rating on the Class A Notes, as described in Morningstar DBRS' "Legal and Derivative Criteria for European Structured Finance Transactions" methodology.

An interest rate swap contract with Banco Sabadell mitigates the interest rate risk in the transaction. The Morningstar DBRS Long-Term COR of Banco Sabadell is above the First Credit Rating Threshold as described in Morningstar DBRS' "Legal and Derivative Criteria for European Structured Finance Transactions" methodology, given the AA (sf) credit rating on the Class A Notes.

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' 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 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 rating is: "Master European Structured Finance Surveillance Methodology" (19 November 2024), https://dbrs.morningstar.com/research/443204.

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 these credit ratings includes investor reports provided by the management company, Titulización de Activos, S.G.F.T., 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 took place on 28 November 2023, when Morningstar DBRS confirmed the credit ratings on the Class A and Class B Notes at AA (sf) and BBB (high), respectively.

The lead analyst responsibilities for this transaction have been transferred to Baran Cetin.

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 3.1% and 25.2%, respectively.
-- The risk sensitivity overview below illustrates the credit ratings expected if the PD and LGD increase by a certain percentage over the base case assumptions.

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AA (sf)
-- 50% increase in LGD, expected credit rating of AA (sf)
-- 25% increase in PD, expected credit rating of AA (sf)
-- 50% increase in PD, expected credit rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of BBB (high) (sf)
-- 50% increase in LGD, expected credit rating of BBB (sf)
-- 25% increase in PD, expected credit rating of BBB (low) (sf)
-- 50% increase in PD, expected credit rating of BB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of BB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of BB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of BB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of BB (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: Ketan Thaker, Managing Director
Initial Credit Rating Date: 29 November 2017

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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.

-- Legal and Derivative Criteria for European Structured Finance Transactions (19 November 2024), https://dbrs.morningstar.com/research/443196.
-- Master European Structured Finance Surveillance Methodology (19 November 2024), https://dbrs.morningstar.com/research/443204.
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024),
https://dbrs.morningstar.com/research/437781.
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2024), https://dbrs.morningstar.com/research/439913.
-- Operational Risk Assessment for European Structured Finance Originators and Servicers (18 September 2024), https://dbrs.morningstar.com/research/439571.
-- European RMBS Insight Methodology (18 September 2024) and European Asset RMBS Insight Model v 10.0.0.0,
https://dbrs.morningstar.com/research/439573.
-- European RMBS Insight: Spanish Addendum (8 March 2024),
https://dbrs.morningstar.com/research/429109.

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/439604.

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.