DBRS Confirms A (high) Ratings on Cajamar Cédulas Hipotecarias

DBRS Ratings Limited (DBRS) has today confirmed its A (high) ratings on the Cédulas Hipotecarias (CH, Spanish mortgage covered bonds) issued by Cajamar Caja Rural, Sociedad Cooperativa de Crédito (Cajamar or the Issuer). The confirmation follows the completion of a full review of the ratings.

The ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) reflective of the likelihood that the source of payments will switch from the Reference Entity to the cover pool (CP). Cajamar is the Issuer and Reference Entity for the programme.
-- A Legal and Structuring Framework (LSF) Assessment of Average associated with Cajamar CH.
-- A Cover Pool Credit Assessment (CPCA) of BBB (low), being the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L).
-- A LSF-L of A (low).
-- A two-notch uplift for high recovery prospects.
-- A level of overcollateralisation (OC) of 146% that DBRS gives credit to, being the minimum observed OC level during the past 12 months adjusted by a scaling factor of 0.90 times.

The transaction was modelled using the DBRS European Covered Bond Cash Flow Model. 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.

Everything else being equal, a downgrade of the CBAP by one notch would lead to a downgrade of the LSF-L by one notch, resulting in a downgrade of the covered bonds rating by one notch. In addition, everything else being equal, the CH ratings would be downgraded if any of the following occurred: (1) the CPCA were downgraded below BBB (low); (2) the sovereign rating of the Kingdom of Spain were downgraded below A (low); (3) the LSF assessment associated with the programme were downgraded; (4) the quality and consistency of the CP were no longer sufficient to support a two-notch uplift for high recovery prospects; (5) the relative amortisation profile of the CH and CP moved adversely; or (6) volatility in the financial markets were to cause the currently estimated market value spreads to increase.

The total outstanding amount of CH is EUR 6.50 billion, while the aggregate balance of the mortgages in the CP is EUR 16.95 billion (as of April 2016), resulting in a total OC of 161%. The eligible CP stands at EUR 9.76 billion, resulting in an eligible OC of 49%.

As of March 2016, the cover pool comprises 168,491 mortgage loans with a weighted-average current unindexed loan-to-value ratio of 64.6%, with a 60% residential, 28% commercial, 8% developer and 4% land loans split. It is geographically distributed among Cajamar’s main areas of influence, with higher concentrations in Andalusia (33%), Community of Valencia (28%) and Murcia (17%). The pool is 79 months seasoned.

The vast majority of the loans in the CP (approximately 97%) are floating rate, while all the liabilities pay a fixed coupon. As is customary in Spanish CH, swaps are not for the benefit of the CH holders. This has been accounted for in the DBRS cash flow modelling. The weighted-average life of the assets is roughly 11 years, while that of the covered bonds is roughly three-and-a-half years. This generates an asset-liability mismatch that is partly mitigated by the available OC.

For further information on Cajamar CH, please refer to the rating report available on www.dbrs.com.

DBRS has assessed the LSF related to Cajamar CH as Average according to its rating methodology. For more information, please refer to the DBRS Commentary “Spanish Mortgage Covered Bonds: Legal and Structuring Framework Review” and “DBRS Assigns Legal and Structuring Framework Assessment to Spanish Mortgage Covered Bonds Programmes”, available at www.dbrs.com.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is “Rating European Covered Bonds” (March 2016). This can be found at http://www.dbrs.com/about/methodologies. 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 documents have remained unchanged since the most recent rating action. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

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

The sources of information used for this rating include historical default performance data and cover pool stratification tables provided by Cajamar that allowed DBRS to further assess the portfolio.

DBRS does not rely upon third-party due diligence in order to conduct its analysis; DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

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.

The last rating action on this programme took place on 5 May 2016, when DBRS assigned ratings to three new issuances.

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

For further information on DBRS historic default rates published by the European Securities and Markets Administration 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: Covadonga Aybar, Vice President
Initial Rating Date: 19 July 2013
Initial Rating Committee Chair: Quincy Tang, Managing Director

Lead Analyst: Covadonga Aybar, Vice President
Rating Committee Chair: Quincy Tang, Managing Director

DBRS Ratings Limited
20 Fenchurch Street 31st Floor, London EC3M 3BY United Kingdom
Registered in England and Wales: No. 7139960

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.
-- Rating European Covered Bonds
-- Rating European Covered Bonds Addendum: Market Value Spreads Range (Midpoints)
-- Critical Obligations Rating Criteria
-- Global Methodology for Rating Banks and Banking Organisations
-- DBRS Criteria: Support Assessments for Banks and Banking Organisations
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Unified Interest Rate Model for European Securitisations
-- European RMBS Insight Methodology
-- European RMBS Insight Methodology: Spanish Addendum
-- Operational Risk Assessment for European Structured Finance Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating CLOs and CDOs of Large Corporate Credit
-- Rating CLOs Backed by Loans to European Small and Medium-Sized Enterprises (SMEs)
-- The Effect of Sovereign Risk on Securitisations in the Euro Area
-- Sovereign Ratings Provide a Benchmark for other DBRS Credit Ratings

A description of how DBRS methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375