DBRS Maintains IM Grupo Banco Popular MBS 3, FT Under Review with Positive Implications

DBRS Ratings Limited (DBRS) maintained the Under Review with Positive Implications (UR-Pos.) status on its A (low) (sf) and C (sf) ratings of the Series A and Series B notes (together, the Notes), respectively, issued by IM Grupo Banco Popular MBS 3, FT (IM GBP MBS 3).

The rating on the Series A notes addresses the timely payment of interest and the ultimate payment of principal payable on or before the Final Maturity Date in December 2058. The rating on the Series B notes addresses the ultimate payment of interest and principal payable on or before the Final Maturity Date in December 2058.

The Notes were placed UR-Pos. on 30 April 2018, following the upgrade of the Kingdom of Spain’s Long-Term Foreign and Local Currency – Issuer Rating to ‘A’ from A (low) and DBRS’s ongoing analysis of the Spanish real estate market. For more information, please refer to this press release:https://www.dbrs.com/research/326766/dbrs-takes-rating-actions-on-21-eu-structured-finance-transactions-following-spain-sovereign-rating-upgrade. The maintenance of the UR-Pos. status on the Notes follows an annual review of the transaction that incorporates the Spanish sovereign rating upgrade and the following analytical considerations:

-- Portfolio performance, in terms of delinquencies, defaults and losses.
-- Updated portfolio default rate (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement (CE) to the Notes to cover the expected losses at their respective rating levels.

IM GBP MBS 3 is a securitisation of Spanish prime residential mortgage loans originated by Banco Popular Español, S.A. (BPE) and Banco Pastor, S.A. (Pastor), which closed in December 2015. After its acquisition of Banco Popular, Banco Santander SA (Santander) began acting as the servicer of the portfolio.

PORTFOLIO PERFORMANCE AND ASSUMPTIONS
The portfolio is performing within DBRS’s expectations. As of the March 2018 payment date, the loans in arrears for over 90 days represented 1.1% of the outstanding collateral portfolio, while the current cumulative default ratio was at 1.5% of the original portfolio balance, up from 0.36% a year ago.

DBRS conducted a loan-by-loan analysis on the remaining collateral pool of receivables and updated its PD and LGD assumptions. The updated base-case PD and LGD of the transaction are 13.6% and 45.4%, respectively.

The improvement of the PD and LGD assumptions, which is credit positive to the transaction, reflects the Spanish sovereign rating upgrade, and the decrease of the portfolio loan-to-value ratio as the portfolio continues to deleverage. The Notes will remain UR-Pos while DBRS continues to analyse the possible effect of the recent developments in the Spanish real estate market.

CREDIT ENHANCEMENT
The CE available to the notes has continued to increase as the transaction deleverages. The Series A notes are supported by the subordination of the Series B notes and a non-amortising reserve fund (RF), which is available to cover senior fees, interest and principal on the Series A notes until the Series A notes are paid in full, after which time the RF will be available to support the Series B notes. As of March 2018, the RF was at its target of EUR 27 million, and the CE to the Series A notes and Series B notes was 28.4% and 3.4%, respectively, increasing from 26.6% and 3.1% as of March 2017.

Banco Santander SA acts as the Account Bank for the transaction. The Account Bank’s reference rating of A (high), being one notch below its DBRS public Long-Term Critical Obligations Rating of AA (low), is consistent with the Minimum Institution Rating, given the rating assigned to the Series A notes, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology”.

DBRS has applied the principal methodology consistently and conducted a review of the transactions in accordance with the principal methodology.

A review of the transactions’ legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

Other methodologies referenced in these transactions 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 “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf.

The sources of data and information used for these ratings include reports provided by InterMoney Titulización, S.G.F.T., S.A. and loan-level data provided by the European DataWarehouse GmbH.

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

DBRS considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

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

The last rating action on this transaction took place on 30 April 2018, when DBRS placed the Notes UR-Pos. Prior to that on 31 May 2017, DBRS confirmed the ratings of Series A and Series B notes at A (low) (sf) and C (sf), respectively.

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

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with the parameters used to determine the rating (the Base Case):
-- DBRS expected a lifetime base-case PD and LGD for the pool based on a review of the current assets. 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 assumptions for the remaining portfolio collateral are 13.6% and 45.4%, respectively. At the A (low) (sf) rating level, the corresponding PD is 29.8% and the LGD is 54.2%.
-- 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 on the Series A notes would be expected to be at A (low) (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Series A notes would be expected to be at A (low) (sf), assuming no change in the LGD. Furthermore, if both the PD and the LGD increase by 50%, the rating on the Series A notes would be expected to be at A (low) (sf).

Series A notes risk sensitivity:
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD, expected rating of A (low) (sf)
-- 50% increase in PD, expected rating of A (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)

The Series B notes rating would not be affected by any hypothetical change to either PD or LGD.
These ratings are UR-Pos. Generally, the conditions that lead to the assignment of reviews are resolved within a 90-day period.

For further information on DBRS historic 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 and US regulations only.
Lead Analyst: Francesco Amato, Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 3 December 2015

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The rating methodologies used in the analysis of these transactions 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
-- European RMBS Insight Methodology
-- European RMBS Insight: Spanish Addendum
-- Interest Rate Stresses for European Structured Finance Transactions

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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.