DBRS Confirms Ratings on the Notes Issued by Caixabank Consumo 3 F.T.

DBRS Ratings Limited (DBRS) confirmed its ratings of A (high) (sf) on the Series A notes and CC (sf) on the Series B notes (together, the Notes) issued by Caixabank Consumo 3 F.T. (the Issuer).

Additionally, DBRS removed the Notes from their Under Review with Positive Implications (UR-Pos.) status. 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 analysis of the recent performance of the Spanish real estate market. For more information please see DBRS’s press release: https://www.dbrs.com/research/326766/dbrs-takes-rating-actions-on-21-eu-structured-finance-transactions-following-spain-sovereign-rating-upgrade.

The rating actions follow an annual review of the transaction incorporating the Spanish sovereign rating upgrade and the following analytical considerations:

-- The portfolio performance, in terms of level of delinquencies and cumulative net losses, as of the June 2018 payment date;
-- Revised default rate and expected loss assumptions for the remaining collateral pool, considering the the proposed update on the House Price Indexation (HPI) and Market Value Decline (MVD) rates as published in “European RMBS Insight: Spanish Addendum - Request for Comment” methodology; and
-- The current levels of credit enhancement (CE) available to the Series A and Series B notes to cover the expected losses assumed at the A (high) (sf) and CC (sf) rating levels, respectively.

The rating on the Series A notes addresses the timely payment of interest and the ultimate repayment of principal on or before the legal maturity date in March 2053.

The rating on the Series B notes addresses the ultimate payment of interest and repayment of principal on or before the legal maturity date in March 2053.

The Issuer is a securitisation collateralised by a portfolio of consumer loans granted by CaixaBank, S.A. (Caixabank) to individuals in Spain. The portfolio consists of unsecured and mortgage loans, including standard contracts and drawdowns from a revolving credit line (Crédito Abierto).

PORTFOLIO PERFORMANCE
As of the June 2018 payment date, 30-day to 60-day delinquencies represented 0.4% of the outstanding principal balance and 60-day to 90-day delinquencies represented 0.1%, while delinquencies greater than 90 days represented 2.7%. The gross cumulative defaults as a ratio of the original portfolio were 0.2%, of which 0.8% have been recovered so far.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the remaining pool and updated its probability of default (PD) and loss given default (LGD) base case assumptions on the remaining mortgage receivable portion of the portfolio to 9.7% and 49.8%; and on the remaining unsecured consumer loan pool to 6.4% and 67.3%, respectively.

The updated assumptions incorporate the Spanish sovereign rating which was upgraded to “A” from A (low) on 6 April 2018. DBRS determined that the proposed updated MVDs and HPIs, as per the “European RMBS Insight: Spanish Addendum - Request for Comment”, do not have any rating impact on this transaction. As a result, the ratings of the Notes have been removed from UR-Pos.

CREDIT ENHANCEMENT
CE is provided to the Series A notes by the subordination of the Series B notes and the cash reserve; while CE to the Series B notes is provided solely by the cash reserve. CE to the Series A notes increased to 15.1% in June 2018, from 11.0% at closing; CE to the Series B notes increased to 5.5% from 4.0%.

Caixabank acts as the account bank for the transaction. Caixabank’s reference rating is one notch below its DBRS Long-Term Critical Obligations Rating of AA (low), which is consistent with the Minimum Institution Rating, given the rating assigned to the Series A, 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: “Master European Structured Finance Surveillance Methodology”.

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 legal documents have remained unchanged since the most recent rating action.

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 “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 investor reports provided by CaixaBank Titulización, S.G.F.T., S.A. – the management company – 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 Series A and Series B ratings UR-Pos., following the Spanish sovereign rating upgrade. Prior to that, DBRS finalised its provisional ratings of the transaction on 24 July 2017 at A (high) (sf) and CC (sf) on the Series A and Series B notes, respectively.

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 these ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):

-- DBRS expected a base case PD and LGD for the portfolio 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 of the current pool of mortgage receivables are 9.7% and 49.8%, respectively. The base case PD and LGD of the current pool of unsecured consumer loan receivables are 6.4% and 67.3%, respectively.

For example, if the LGD increases by 50%, the rating of the Series A notes would be expected to remain at A (high) (sf), ceteris paribus. If the PD increases by 50%, the rating of the Series A notes would be expected to remain at A (high) (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating of the Series A notes would be expected to decrease to BBB (high) (sf), ceteris paribus.

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

The ratings on the Series B notes would not be affected by a change in either the PD or LGD.

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 and US regulations only.

Lead Analyst: Joana Seara da Costa, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 18 July 2017

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

-- Master European Structured Finance Surveillance Methodology
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- European RMBS Insight Methodology
-- European RMBS Insight: Spanish Addendum
-- Legal Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers

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.