DBRS Confirms Ratings on IM Sabadell RMBS 2 Fondo de Titulizacion de Activos

DBRS Ratings Limited (“DBRS”) has reviewed IM Sabadell RMBS 2, Fondo de Titulizacion de Activos (the “Issuer”) and has confirmed the Class A Notes at ‘AA (high)’ (sf). The rating on the Series A Notes addresses timely payment of interest and full payment of principal by the legal maturity date. Class B and C are not rated by DBRS.

The rating action is based on the following analytical considerations:
• Portfolio performance, in terms of delinquencies and defaults, as of June 2014.
• Updated portfolio default rate, loss given default and expected loss assumptions for the remaining collateral pool. Legal framework and current transaction capital structure.
• Originator’s capabilities with respect to origination and servicing of the underlying assets.

The Notes are backed by a static portfolio of first-ranking mortgage loans secured by residential properties in Spain which were originated and continue to be serviced by Banco Sabadell. The portfolio has more than 9 years of seasoning and a weighted average unindexed current loan-to-value of 44.5%. 42.9% of the properties backing the loans are located in Catalonia, Banco Sabadell’s home region.

The current 90+ delinquency ratio, as a percentage of the performing balance of the portfolio, was 0.61% and cumulative defaults, defined as loans in arrears for more than 12 months over original balance, was 1.71%. The default ratio net of recoveries stands at 0.54%, EUR14.54mln have been fully recovered since closing and EUR1.6mln are partial recoveries. The portfolio is performing within DBRS expectations and the available credit enhancement for the Series A Notes is sufficient to cover DBRS expected losses at the current rating levels. The rating analysis incorporates a sovereign related stress component to address the impact of macroeconomic variables on collateral performance given the long-term foreign and local currency rating of ‘A’ (low) for the Kingdom of Spain.

Credit enhancement for the Series A Notes consists of subordination of the Series B Notes (2.53%), Series C Notes (2.33%) and the Reserve Fund (3.03%). The reserve fund is at its required level and is currently amortising. Good performance has allowed credit enhancement of class A notes to increase and sequential amortization among class A, B and C notes to take place in July-2014 first time since closing.

Banco Sabadell SA, whose Senior Unsecured Long-Term Debt & Deposit is rated A (low) by DBRS, is the originator, servicer and the swap provider. The Management Company implemented remedial actions for the swap, opening an account in favour to the SPV and sending the collateral posting calculations according to DBRS methodology on a weekly basis. Banco Santander SA, whose Senior Unsecured Long-Term Debt & Deposit is rated A by DBRS, is the treasury account bank provider, the paying agent, the swap collateralization account bank provider and an eligible counterparty according to DBRS Legal Criteria for European Structured Finance Transactions.

Notes:
All figures are in Euro unless otherwise noted.

The principal methodology applicable is the Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

This 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 investor reports provided by Intermoney S.G.F.T., S.A. and data from the European Data Warehouse. DBRS considers the information available to it for the purposes of providing this rating to be 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.

The last rating action on this transaction took place on 8 August 2013, when DBRS confirmed the ratings on the Class A notes.

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

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):
• DBRS expected a lifetime base case Probability of Default (PD) and Loss Given Default (LGD) for the pool based on a review of the current receivables. 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 mortgages for the Issuer are 2.17% and 12.45%, respectively. The corresponding levels at the AAA (sf) rating level are 25.09% and 41.11%.
• The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating of Series A Notes would be expected to remain at ‘AA (high)’ (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Series A Notes would be expected to remain at ‘AA (high)’ (sf), assuming no change in the LGD. Furthermore, if both PD and LGD increase by 50%, the rating would be expected to fall to ‘AA’ (sf).

Series A Notes Risk Sensitivity:
• 25% increase in LGD, expected rating of ‘AA (high)’ (sf)
• 50% increase in LGD, expected rating of ‘AA (high)’ (sf)
• 25% increase in PD, expected rating of ‘AA (high)’ (sf)
• 50% increase in PD, expected rating of ‘AA (high)’ (sf)
• 25% increase in PD and 25% increase in LGD, expected rating of ‘AA (high)’ (sf)
• 25% increase in PD and 50% increase in LGD, expected rating of ‘AA (high)’ (sf)
• 50% increase in PD and 25% increase in LGD, expected rating of ‘AA (high)’ (sf)
• 50% increase in PD and 50% increase in LGD, expected rating of ‘AA’ (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: Alastair Bigley
Initial Rating Date: 2 March 2011
Initial Rating Committee Chair: Claire Mezzanottee

Lead Surveillance Analyst: Vito Natale
Rating Committee Chair: Mary Jane Potthoff

DBRS Ratings Limited
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United Kingdom

Registered in England and Wales: No. 7139960

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
• Master European Structured Finance Surveillance Methodology
• 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