DBRS Assigns Provisional Ratings to Caixabank RMBS 2 Fondo de Titulización

DBRS Ratings Limited (DBRS) has today assigned provisional ratings to the notes issued by Caixabank RMBS 2 Fondo de Titulización (the Issuer) as follows:

-- Class A Notes rated A (sf)
-- Class B Notes rated B (sf)

The rating on the Class A Notes addresses timely payment of interest and ultimate payment of principal. The rating on the Class B Notes addresses ultimate payment of interest and ultimate payment of principal. Credit enhancement is provided in the form of subordination and an amortising reserve fund. In addition, the reserve fund provides liquidity support.

Proceeds from the issuance of the Class A and Class B Notes will be used to purchase a portfolio of first-lien residential mortgage loans and first-lien multi-credito mortgage loans, secured over properties located in Spain. The mortgage loans were originated by Caixabank, S.A. (Caixabank). Caixabank will also be the servicer of the portfolio. In addition, Caixabank will provide a separate subordinated loan to fund the reserve fund. The securitisation will take place in the form of a fund, in accordance with Spanish Securitisation Law.

The ratings are based on DBRS’s review of the following analytical considerations:
-- The transaction’s capital structure and the form and sufficiency of available credit enhancement. The Class A Notes benefit from EUR 272 million (10.0%) subordination of the Class B Notes and the EUR 129.2 million (4.75%) reserve fund, which is available to cover senior fees as well as interest and principal of the Class A Notes until paid in full. The reserve fund will amortise with a target equal to 6.0% of the current balance of the rated notes, subject to a floor equal to the lower of (1) 6.0% of the outstanding balance of the Class A and Class B Notes and (2) 4.75% of the initial balance of the Class A and Class B Notes. The reserve fund will not amortise if certain performance triggers are breached. The Class A Notes will benefit from full sequential amortisation, where principal on the Class B Notes will not be paid until the Class A Notes have been redeemed in full. Additionally, the Class A Notes principal will be senior to the Class B Notes interest payments in the priority of payments.
-- DBRS was provided with the provisional portfolio with a balance of EUR 2,742 million as of 24 February 2017. At closing, the portfolio balance will be equal to the balance of the notes (EUR 2,720 million). 35.1% of the portfolio is Crédito Abierto drawdowns where the borrower has the ability to withdraw further advances, subject to borrower performance and eligibility criteria. Further draws will not be funded by the Issuer; however, further draws will rank pari passu with the securitized loans. The main characteristics of the total portfolio include: (1) 79.9% weighted-average current loan-to-value (WACLTV) and 94.9% indexed WA CLTV (Q4 2015); (2) the top three geographical concentrations are Andalusia (20.5%), Catalonia (17.9%) and Madrid (14.2%); (3) 7.4% of the borrowers are non-nationals and 2.5% are non-residents; (4) WA loan seasoning of 4.2 years; and (5) the WA remaining term of the portfolio is 25.1 years.
-- 63.3% of the portfolio comprises floating-rate mortgages, primarily linked to 12-month Euribor (60.4%) and IRPH (2.9%) and the remaining 36.7% of the portfolio consists of fixed-rate mortgages (including 3.2% of loans that pays a VPO rate, which DBRS assumed to be fixed in its cash flow analysis). The notes are floating-rate liabilities indexed to three-month Euribor. The interest rate risk and basis risk is unhedged. DBRS notes that the unhedged position exposes the transaction to interest risk, which could negatively affect the rating in case of interest rate rises and/or an increase of the fixed-rate loan portion in the portfolio after permitted loan modifications. Reserve fund amounts are available to cover the interest rate and basis risk for the rated notes. Additionally, the Class A Notes benefit from the senior position in the priority of payments to the Class B Notes. DBRS stressed the interest rates as described in the DBRS “Unified Interest Rate Model for European Securitisations” methodology. DBRS will continue to monitor the interest rate structure of the transaction.
-- The credit quality of the mortgages backing the notes and the servicer’s ability to perform its servicing responsibilities. DBRS was provided with Caixabank’s historical mortgage performance data separated between first-lien mortgages and Crédito Abierto drawdowns as well as with loan-level data for the mortgage portfolio. Details of the portfolio default rate (PDR), loss given default (LGD) and expected losses (EL) resulting from DBRS’s credit analysis of the mortgage portfolio at A (sf) and B (sf) stress scenarios are detailed below. In accordance with the transaction documentation, the servicer is able to grant loan modifications without the management company’s consent within the range of permitted variations. According to the documentation, permitted variations are allowed and include (1) the possibility of floating-rate loans to be converted to fixed-rate loans, (2) an extension of the maturity up until June 2057 for up to 5% of the initial portfolio and (3) a reduction of the interest rate on the loans as long as the WA interest rate of the portfolio never falls below three-month Euribor (floor of 0%) + 1%. DBRS stressed the margin of the portfolio to 1.0% in its cash flow analysis and extended the maturity for 5% of the mortgage loans up to June 2057 in its cash flow analysis. The servicer can modify the interest rate type of loans from floating- to fixed-rate loans. The transaction documents allow the proportion of fixed-rate mortgage loans to be 38.0% as of the Initial Balance.
-- The transaction’s account bank agreement and respective replacement trigger require Caixabank acting as the treasury account bank to find (1) a replacement account bank or (2) an account bank guarantor upon loss of a BBB (low) rating. The DBRS Critical Obligations Rating of Caixabank is A (high) while the DBRS rating for Caixabank to act as account bank is “A.”
-- The credit quality of the mortgage loan portfolio and the servicer’s ability to perform collection activities. DBRS calculated PDR, LGD and EL outputs on the mortgage loan portfolio. The portfolio was grouped into two sub-portfolios based on product type. The first sub-portfolio includes the Crédito Abierto drawdowns and was assigned a Spanish Underwriting Score of 2. The second sub-portfolio includes the standard mortgages and was assigned a Spanish Underwriting Score of 3. DBRS expects the future performance of the Crédito Abierto product to be better than credit-line products observed in programs, such as Hipocat Fondo de Titulización, given the past performance of these products and the underwriting criteria applied by Caixabank. As a consequence, DBRS’s European Insight Model assigned a score to these loans that is lower than the typical credit-line product.
-- The transaction’s ability to withstand stressed cash flow assumptions and to repay the Class A and the Class B Notes according to the terms of the transaction documents. The transaction cash flows were modelled using PDR and LGD outputs provided by the European RMBS Insight Model in Intex. DBRS considered cash flow stresses as outlined in its Spanish Addenda, Cash Flow Analysis. The Class A Notes did not pass the 0% conditional prepayment rate (CPR) stress in the up interest rate front- and back-loaded default scenario whereas the Class B Notes did not pass the 0% CPR stress in the up interest rate back-loaded default scenario. Past CPR rates in RMBS transactions originated by Caixabank have been consistently at and above 2%. DBRS also tested a CPR scenario of 2% where there was a small principal shortfall for the Class A Notes in the up interest rate and back-loaded default scenario. DBRS will continue to monitor prepayment rates as part of its surveillance process.
-- The sovereign rating of the Kingdom of Spain rated A (low) with a Stable trend and R-1 (low) with a Stable trend (as of the date of this PR).
-- The legal structure and presence of legal opinions addressing the assignment of the assets to the Issuer and the consistency with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodologies are “European RMBS Insight Methodology” and “European RMBS Insight: Spanish Addendum.”

DBRS has applied the principal methodology consistently.

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

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

For a more detailed discussion of the 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 data and information used for these ratings include Caixabank and CaixaBank Titulización, S.G.F.T., S.A.

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 provisional rating analysis.

DBRS considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

These ratings 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, is 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):

In respect of the Class A Notes, a Probability of Default Rate (PDR) of 22.8% and Loss Given Default (LGD) Rate of 47.7%, corresponding to a A (sf) rating scenario, were stressed assuming a 25% and 50% increase to the PD and LGD:
-- A hypothetical increase of the base case PDR by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (low) (sf).
-- A hypothetical increase of the base case PDR by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to BBB (high) (sf).
-- A hypothetical increase of the base case LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (low) (sf).
-- A hypothetical increase of the base case LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to BBB (high) (sf).
-- A hypothetical increase of the base case PDR by 25% and LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to BBB (high) (sf).
-- A hypothetical increase of the base case PDR by 25% and LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to BBB (sf).
-- A hypothetical increase of the base case PDR by 50% and LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to BBB (sf).
-- A hypothetical increase of the base case PDR by 50% and LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to BBB (low) (sf).

In respect of the Class B Notes a PDR of 8.3% and LGD Rate of 30.3%, corresponding to a B (sf) rating scenario, were stressed assuming a 25% and 50% increase to the PDR and LGD Rate:
-- A hypothetical increase of the base case PDR by 25%, ceteris paribus, would lead to maintaining the ratings on the Class B Notes at B (sf).
-- A hypothetical increase of the base case PDR by 50%, ceteris paribus, would lead to maintaining the ratings on the Class B Notes at B (sf).
-- A hypothetical increase of the base case LGD by 25%, ceteris paribus, would lead to maintaining the ratings on the Class B Notes at B (sf).
-- A hypothetical increase of the base case PDR by 25% and LGD by 25%, would lead to maintaining the ratings on the Class B Notes at B (sf).

For further information on DBRS historical default rates published by the European Securities and Markets Authority (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 Rating Date: 20 March 2017
Lead Analyst: Belen Bulnes Meneses, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director

Lead Surveillance Analyst: Antonio Di Marco, Senior Financial Analyst

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

-- European RMBS Insight Methodology and European RMBS Insight: Spanish Addendum (17 May 2016)
-- Legal Criteria for European Structured Finance Transactions (14 September 2016)
-- Unified Interest Rate Model Methodology for European Securitisations (2 November 2016)
-- Operational Risk Assessment for European Structured Finance Servicers (14 October 2016)
-- Operational Risk Assessment for European Structured Finance Originators (14 October 2016)

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375