Morningstar DBRS Confirms AAA Credit Ratings of Caixabank S.A. Covered Bonds

DBRS Ratings GmbH (Morningstar DBRS) confirmed its AAA credit ratings on the outstanding Cédulas Hipotecarias (CH, Spanish mortgage covered bonds) issued under the Caixabank S.A. Covered Bonds programme (Caixabank CH or the Programme). This rating action follows the completion of a full review of the credit ratings.

Concurrently, Morningstar DBRS discontinued its credit ratings on the Cedulas Hipotecarias - ES0440609248, which was redeemed on 21 March 2024 and on the Cedulas Hipotecarias - ES0440609149, which was redeemed early on 9 December 2024.

The credit ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of AA, which is Caixabank's Long Term Critical Obligations Rating. Caixabank 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 "A", which is the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L).
-- An LSF-L of AAA.
-- No uplift for recovery prospects.
-- A level of overcollateralisation (OC) of 65.3% 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 of the Kingdom of Spain, rated A (high) with a Stable trend by Morningstar DBRS, as of the date of this press release.

Morningstar DBRS analysed the transaction with 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 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 CB ratings. In addition, all else unchanged, the CH ratings would be downgraded if any of the following occurred: (1) the CPCA was downgraded below "A"; (2) the LSF assessment associated with the Programme was downgraded to "Average" or below; (3) the relative amortisation profile of the CH and CP moved adversely; or (4) 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.

The total outstanding amount of CH under the programme is currently EUR 60.3 billion, of which Morningstar DBRS publicly rates EUR 30.1 billion. As of September 2024, the assets in the CP amounted to EUR 106.7 billion, including liquid assets to cover the net liquidity outflow of the CB programme over the next 180 days (Liquidity Buffer). This resulted in a total OC of 76.8%.

Spanish CBs are backed by a specific portfolio of assets selected by the issuer. As of 30 September 2024, the CP comprised 1,508,628 mortgage loans, with a weighted-average (WA) current unindexed loan-to-value ratio of 46.7%. The pool is composed of residential loans (89.9%), commercial loans (7.0%), developers (1.1%), and land (0.1%). The remaining part of the portfolio (1.9%) corresponds to the Liquidity Buffer.

The CP is geographically diversified, with higher concentrations in Catalonia (23.7%), Madrid (20.5%), and Andalucia (14.6%). The pool is 9 years seasoned.

As is customary in the Spanish market, CH do not benefit from hedging agreements to cover the mismatch between the interest paid by the cover pool (55.4% floating rate linked to different indexes and resets) and the interest paid to the covered bondholders (71.1% floating rate linked to different indexes and resets). This risk is mitigated by the OC available and has been accounted for in Morningstar DBRS´s cash flow analysis.

The two foreign currency CH amount to a nominal of USD 966 million, equivalent to EUR 863 million at the spot rate as of 30 September 2024 (or 1.4% of the CH outstanding). Of the loans, 0.1% were originated in a currency other than euros. Morningstar DBRS considers this exposure to be negligible and to be mitigated by the available OC.

The WA life of the assets is 9.4 years while that of the covered bonds, as of the date of this press release, is 3.9 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 Morningstar DBRS' "Spanish Mortgage Covered Bonds: Legal and Structuring Framework Review" commentary, 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 covered bond 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.

ESG factors that have a significant or relevant effect on the credit analysis of the issuer are discussed separately at https://dbrs.morningstar.com/issuers/18872.

ESG Considerations had a relevant effect on this credit analysis: the Social factors affect this Programme as the Social factors for the Kingdom of Spain (the Sovereign) and the Issuer are passed through to the rated CBs issued under the Programme, given that the CBAP would be affected by changes of the credit ratings of the Sovereign and the Issuer driven by these factors. However, this change wouldn't affect the credit ratings of the rated CBs issued under this Programme.

There were no Environmental nor 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.

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 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 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 CP stratification tables as of 30 September 2024, 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 January 2024, when Morningstar DBRS confirmed its AAA credit ratings to the CBs outstanding under the Programme.

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, Credit Ratings
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: January 20, 2016

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

-- European RMBS Insight Methodology (3 December 2024) and European RMBS Insight model v. 10.1.0.0, https://dbrs.morningstar.com/research/444100.

-- Legal and Derivative Criteria for European Structured Finance Transactions (19 November 2024), https://dbrs.morningstar.com/research/443196

-- 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

-- Rating CLOs Backed by Loans to European SMEs (19 November 2024) and SME Diversity Model v. 2.7.1.5, https://dbrs.morningstar.com/research/443198

-- Global Methodology for Rating CLOs and Corporate CDOs (19 September 2024),
https://dbrs.morningstar.com/research/439759

-- Global Methodology for Rating Sovereign Governments (15 July 2024),
https://dbrs.morningstar.com/research/436000

-- Currency Stresses for Global Structured Finance Transactions (19 November 2024), https://dbrs.morningstar.com/research/443202.

-- 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/439604.

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