Morningstar DBRS Confirms AAA Credit Ratings on Banco Sabadell S.A. Covered Bonds (Cédulas Hipotecarias - Mortgages)

DBRS Ratings GmbH (Morningstar DBRS) confirmed its AAA credit ratings on the covered bonds issued by Banco de Sabadell S.A. (Banco Sabadell or the Issuer) under the Banco Sabadell Covered Bonds (Cédulas Hipotecarias or CH) programme (the Programme).

This rating action follows the completion of a full review of the credit ratings.

The credit ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of A (high), which is Banco Sabadell's Long Term Critical Obligations Rating. Banco Sabadell is the Issuer and Reference Entity for the programme.
-- A Legal and Structuring Framework (LSF) Assessment of "Very Strong" associated with the programme.
-- A Cover Pool Credit Assessment (CPCA) of AA, 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 overcollateralization (OC) of 47.5% 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 on 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 cover pool (CP).

Everything else equal, a two-notch downgrade of the CBAP would lead to a one-notch downgrade of the LSF-L, resulting in a one-notch downgrade of the CBs credit rating.
In addition, all else unchanged, the CH credit ratings would be downgraded if any of the following occurred: (1) the CPCA were downgraded below AA; (2) the sovereign rating on the Kingdom of Spain were downgraded below A (high); (3) the LSF assessment associated with the Programme were downgraded; (4) the relative amortisation profile of the CH and CP moved adversely; or (5) 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 15.9 billion, of which Morningstar DBRS publicly rates EUR 5.9 billion.
As of March 2025, the assets in the CP amounted to EUR 25.5 billion. This resulted in a total OC of 59.9%, considering the current balance of the outstanding CH.

Spanish CBs are backed by a specific portfolio of assets selected by the issuer. As of 31 March 2025, the CP comprised 288,789 mortgage loans, with a weighted-average (WA) current unindexed loan-to-value ratio of 51.7% and a WA seasoning of 6.2 years.
The pool is composed of residential loans (89.2%) and commercial loans (8.8%). The remaining part of the portfolio (2.0%) is represented by liquid assets to cover the net liquidity outflow of the CB programme over the next 180 days.

The CP is geographically diversified across Spain, with higher concentrations in Catalonia (37.3%), Community of Valencia (14.9%) and Community of Madrid (13.0%).

As is customary in the Spanish market, CHs do not benefit from hedging agreements to cover the mismatch between the interest paid by the CP (26.8% floating-rate linked to different indexes and resets) and the interest paid to the CB holders (43.6% floating-rate linked to different indexes and resets). This risk is mitigated by the available OC and accounted for in Morningstar DBRS´ cash flow analysis.

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

The WA life of the assets is approximately 10.2 years while that of the CBs, as of the date of this press release, is 3.8 years. This maturity mismatch is mitigated by the available OC.

Morningstar DBRS assessed the LSF related to the programme as "Very Strong" according to its "Global Methodology for Rating and Monitoring Covered Bonds". For more information, please refer to Morningstar DBRS commentaries "Spanish Mortgage Covered Bonds: Legal and Structuring Framework Review", "The Updated Law on Spanish Covered Bonds: Well Aligned with the European Directive", and "Morningstar DBRS Reviews Its Legal and Structuring Framework Assessment for Spanish Covered Bonds" (4 June 2025) which can be found on https://dbrs.morningstar.com/.

Morningstar DBRS' credit ratings on the outstanding CB 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, GOVERNANCE CONSIDERATIONS
Credit rating actions on Banco Sabadell are likely to have an impact on these credit ratings.

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/454196.

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" (25 March 2025) https://dbrs.morningstar.com/research/450542.

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 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 include CP stratification tables as of 31 March 2025 on Banco Sabadell's CP and static pool default and recovery data from 2014 to 2024 on Banco Sabadell's mortgage book 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 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 rating action on this transaction took place on 15 October 2024, when Morningstar DBRS assigned a AAA credit rating to CH ES0413860877.

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: Ketan Thaker, Managing Director
Initial Rating Date: 3 September 2013

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

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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.

-- Global Methodology for Rating and Monitoring Covered Bonds (25 March 2025)
https://dbrs.morningstar.com/research/450542

-- European RMBS Insight Methodology (8 May 2025) and European RMBS Insight model v 10.1.0.1
https://dbrs.morningstar.com/research/453613

-- Global Methodology for Rating Banks and Banking Organisations (23 May 2025)
https://dbrs.morningstar.com/research/454637

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

-- Operational Risk Assessment for European Structured Finance Originators and Servicers (18 September 2024)
https://dbrs.morningstar.com/research/439571

-- Global Methodology for Rating CLOs and Corporate CDOs (19 November 2024)
https://dbrs.morningstar.com/research/443207

-- Rating CLOs Backed by Loans to European SMEs (19 November 2024) and SME Diversity Model v. 2.7.1.6
https://dbrs.morningstar.com/research/443198

-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2024)
https://dbrs.morningstar.com/research/439913

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

-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (16 May 2025)
https://dbrs.morningstar.com/research/454196

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.