DBRS Finalises Provisional Ratings to Two Series of Notes in BBVA RMBS 13 FTA

DBRS Ratings Limited (‘DBRS’) finalises provisional ratings to the following notes issued by BBVA RMBS 13 Fondo de Titulización de Activos (FTA):

-- A (sf) to €3,485,000,000 to Series A notes
-- BB (sf) to €615,000,000 to Series B notes

BBVA RMBS 13 FTA is a securitisation of a portfolio of prime residential mortgage loans secured by first ranking lien mortgages on properties in Spain, originated and serviced by Banco Bilbao Vizcaya Argentaria, S.A (‘BBVA’)(A/Neg Trend/R-1L/Stable). At the closing date of the transaction BBVA RMBS 13 FTA will use the proceeds of the Series A and B notes issuance to fund the purchase of the mortgage portfolio. In addition BBVA will issue a subordinated loan in order to fund the reserve fund. The securitisation will take place in the form of a fund, in accordance with Spanish Securitisation Law.

Rating rationale

The ratings are based upon DBRS review of the following analytical considerations:

• Transaction’s capital structure, the form and sufficiency of available credit enhancement: The rated Series A notes benefit from 20% of credit enhancement in the form of the €615 million (15%) subordination of the Series B notes and the €205 million (5%) of the reserve fund, which is available to cover senior fees, interest and principal of the Series A and B notes. The Series A notes also benefit from a fully sequential amortisation, where principal on the Series B will not be paid until the Series A notes have been redeemed in full.

• The main characteristics of the portfolio as of the cut-off date 11 June 2014 include: (i) 68.3% weighted average current unindexed loan–to-value (‘WA CLTV’) and 99.2% indexed WA CLTV (INE HPI Q4 2013); (ii) top three portfolio geographical concentrations are Andalucia (19.0%), Cataluña (17.0%) and Madrid (16.0%); (iii) 14.1% of self-employed borrowers; (iv) 3.2% of non-national borrowers; (v) a high weighted average seasoning of 5.8 years, with 61.1% of loans originated after the peak of the housing market in 2008 and after; (vi) 9.1% of loans originated through brokers; and (vii) 8.1% second home properties.
• 99.3% of the mortgage portfolio pays a variable interest rate linked to 12 month Euribor and the remaining 0.7% pays a fixed rate. In contrast to the mortgage portfolio the issued notes variable interest rate is linked to 3 month Euribor. DBRS considers there to be limited basis risk in the transaction which is mitigated by i) the historical positive spread between 12 and 3 month Euribor in favour of 12 month Euribor; ii) the monies standing to the credit of the reserve fund; and iii) the available credit enhancement to cover for potential shortfalls from the mismatch. DBRS stressed the existing risk in its cash flow modelling.

• Most of the mortgage products in the pool as of cut-off date (between 87.8% to 92.9% of the mortgage portfolio, depending on the underlying product) benefit from flexible loan features with the option to modify the current loan conditions, such as reduce the margin, opt for grace period, opt for extension or reduction in maturity, switch from floating to fixed (for a period of three years) and vice versa or change the amortisation profile from French amortisation to French amortisation with a final bullet payment. These mortgage loans are a standard product granted by BBVA to its customers. All of the options are subject to conditions borrowers have to fulfil in order to be able to execute the feature, in certain cases their approval is also subject to BBVA. DBRS reviewed the historic data of the feature’s execution rates and took several stresses where appropriate in its assessment into consideration.

• The credit quality of the mortgages backing the notes and the ability of the Servicer to perform its servicing duties. DBRS was provided with the bank’s historical mortgage performance data as well as with loan level data for the mortgage portfolio. Details of the defaults, loss given default and expected losses resulting from DBRS credit analysis of the mortgage portfolio at A (sf), BB (sf) stress scenarios are highlighted below.
In accordance with the transaction documentation, the Servicer is able to grant loan modifications without the consent of the management company within the range of permitted variations. According to the documentation permitted variation include the reduction of the loans margins down to a weighted average of 0.5% of the mortgage portfolio and maturity extension for 10% of the portfolio up to three years before legal final maturity in 2057. In light of these criteria DBRS stressed the margin compression and longer amortisation in its cash flow analysis.

• DBRS used a combination of default timing curves (front- and back-ended), rising and declining interest rates and low, mid and high prepayment scenarios in accordance with the DBRS rating methodology to stress the cash flows. Given the low prepayment level observed in Spain, currently below 5%, DBRS also tested a scenario with zero prepayments.

• The legal structure and presence of legal opinions addressing the assignment of the assets to the issuer and the consistency with the DBRS Legal Criteria for European Structured Finance Transactions.

Notes:
All figures are in Euros unless otherwise noted.

The principal methodology applicable is:
Master European Residential Mortgage-Backed Securities Rating Methodology and the Spanish Jurisdictional Addendum

Notes:

Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

These can be found on www.dbrs.com at:
http://www.dbrs.com/about/methodologies

For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

The sources of information used for this rating include BBVA S.A., and their agents. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

This rating concerns a newly issued financial instrument. This is the first DBRS rating on this financial instrument.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com

To assess the impact of potential changes in the transactions’ parameters on the ratings, DBRS considered in addition to its base case two step up scenarios for its Probability of Default (‘PD’) and Loss Given Default (‘LGD’) assumptions in its cash flow analysis. The two additional stresses commensurate a 25% and 50% increase in both the PD and LGD assumptions for each series of notes.
The following scenarios constitute the parameters used to determine the ratings (the “Base Case”):

• In respect of the Series A notes and a rating category of ‘A (sf)’, the PD of 19.8%, and the LGD of 51.1%
• In respect of Series B notes and a rating category of ‘BB (sf)’, the PD of 10.6% and the LGD of 42.0%

DBRS concludes that for the Series A Notes:

• A hypothetical increase of both, the PD and LGD by 25%, ceteris paribus, would lead to a downgrade of the Series A notes to BBB (high) (sf).

In the remaining eight stress scenarios the ratings of the Series A notes would remain at A (sf).

DBRS concludes that for the Series B notes:

• A hypothetical increase of the PD by 25%, ceteris paribus, would lead to a downgrade of the Series B notes to B (high) (sf).

• A hypothetical increase of the PD by 50%, ceteris paribus, would lead to a downgrade of the Series B notes to B (sf).

• A hypothetical increase of the LGD by 25%, ceteris paribus, would lead to downgrade the Series B notes to BB (low) (sf).

• A hypothetical increase of the LGD by 50%, ceteris paribus, would lead to downgrade the Series B notes to B (high) (sf).

• A hypothetical increase of both, the PD and the LGD by 25%, ceteris paribus, would lead to a downgrade of the Series B notes to B (sf).

• A hypothetical increase of the PD by 25% and the LGD by 50%, ceteris paribus, would lead to a downgrade of the Series B notes to B (sf).

• A hypothetical increase of the PD by 50% and LGD by 25%, ceteris paribus, would lead to a downgrade of the Series B notes to B (sf).

• A hypothetical increase of both, PD and the LGD by 50%, ceteris paribus, would lead to a downgrade of the Series B notes to below B (sf).

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: Sebastian Hoepfner
Initial Final Rating Date: July 16, 2014
Initial Final Rating Committee Chair: Quincy Tang
Lead Surveillance Analyst: Elisa Scalco

DBRS Ratings Limited
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The rating methodologies and criteria used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies

Legal Criteria for European Structured Finance Transactions
Operational Risk Assessment for European Structured Finance Servicers
Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
Unified Interest Rate Model for European Securitisations