DBRS Morningstar Upgrades and Confirms Ratings on Two CaixaBank PYMES Transactions

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the notes issued by two CaixaBank PYMES transactions:

CaixaBank PYMES 9, FT (CX9)

-- Series A Notes confirmed at A (high) (sf)
-- Series B Notes upgraded to B (low) from CCC (sf)

CaixaBank PYMES 10, FT (CX10)

-- Series A notes upgraded to AA (sf) from AA (low) (sf)
-- Series B notes upgraded to CCC (high) (sf) from CCC (sf)

The ratings of the Series A Notes address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date of each transaction.

The ratings of the Series B Notes address the ultimate payment of interest and ultimate payment of principal on or before the legal final maturity date of each transaction.

The rating actions follow an annual review of the transactions and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults and losses.
-- Base case probability of default (PD) and updated default and recovery rates on the remaining receivables.
-- Current available credit enhancement to the Rated Notes to cover the expected losses at their respective rating levels.

CX9 and CX10 are securitisations of secured and unsecured loans and drawdowns of secured and unsecured lines of credit originated by CaixaBank, S.A. (CaixaBank) to small and medium-sized enterprises and self-employed individuals based in Spain.

PORTFOLIO PERFORMANCE
The performance of both transactions remains within DBRS Morningstar expectations.
CX9: As of the 18 September payment date, loans more than three-months delinquent represented 1.3% over the portfolio balance. Gross cumulative defaults amounted to 1.2% of the original collateral balance.
CX10: As of the 25 October 2019 payment date, loans more than three-months delinquent represented 1.2% over the portfolio balance. Gross cumulative defaults amounted to 0.09% of the original collateral balance.

PORTFOLIO ASSUMPTIONS
DBRS Morningstar conducted a loan-by-loan analysis on the remaining pool of each transaction. For CX9, DBRS Morningstar maintained the portfolio’s base case PD assumption at 2.0% and updated the weighted-average recovery rate on the portfolio to 29.2% at the A (high) (sf) rating level. For CX10, DBRS Morningstar maintained the portfolio’s base case PD assumption at 2.6% and updated the weighted-average recovery rate on the portfolio to 32.4% at the AA (sf) rating level.

CREDIT ENHANCEMENT
Credit enhancement in both transactions is provided by the subordination of the junior notes and the reserve fund. The reserve fund is available to cover missed interest and principal payments on the Series A Notes and Series B Notes once the Series A Notes have paid in full. The reserve fund is currently at its target level of EUR 84.2 million in CX9 and EUR 157.9 million in CX10.

CX9: As of the September 2019 payment date, the credit enhancement to the Series A and Series B Notes was 27.81% and 7.7%, up from 20.3% and 5.6% respectively, one year ago.

CX10: As of the October 2019 payment date, the credit enhancement to the Series A and Series B Notes was 26.5% and 6.0%, up from 20.8% and 4.8% respectively, at the initial rating analysis.

CaixaBank acts as the account bank for both transactions. Based on the account bank reference rating of CaixaBank at A (high), which is one notch below the DBRS Morningstar Long-Term Critical Obligations Rating (COR) of AA (low), the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structures, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the Series A Notes in each transaction, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

The transaction structures were analysed in DBRS’s proprietary excel-based cash flow engine.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Rating CLOs Backed by Loans to European SMEs”. DBRS Morningstar 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 actions.

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 “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.

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

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial rating of both transactions, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the rating analysis.

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

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

The last rating action on CX9 took place on 23 November 2018, when DBRS Morningstar upgraded the rating of the Series A Notes to A (high) (sf) from A (low) (sf) and confirmed the Series B Notes at CCC (sf).

The last rating action on CX10 took place on 26 November 2018, when DBRS Morningstar finalised its provisional AA (low) (sf) and CCC (sf) ratings on the Series A Notes and the Series B Notes, respectively.

The lead analyst responsibilities for these transactions have been transferred to Alfonso Candelas.

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

To assess the impact of changing the transaction parameters on the ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

-- PD Rates Used: Base-case PD of 2.0% and 2.6% for CX9 and CX10 respectively, a 10% increase of the base case and a 20% increase of the base-case PD.

-- Recovery Rates Used: CX9: Base-case recovery rates of 29.15% at the A (high) (sf) stress level for the Series A Notes and of 35.5% at the B (low) (sf) for the Series B Notes, a 10% and 20% decrease in the base-case recovery rates; CX10: Base-case recovery rates of 32.45% at the AA (sf) stress level for the Series A Notes and of 39.6% at the CCC (high) (sf) level for the Series B Notes, a 10% and 20% decrease in the base-case recovery rates. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery-rate levels.

CX9: DBRS Morningstar concludes that a hypothetical increase of the base-case PD by 20% or a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a confirmation of the Series A Notes at A (high) (sf) and a downgrade of the Series B Notes below B (low) (sf). A scenario combining both an increase in the base-case PD by 10% and a decrease in the base-case recovery rate by 10%, ceteris paribus, would also lead to a confirmation of the Series A Notes at A (high) (sf) and a downgrade of the Series B Notes below B (low) (sf).

CX10: DBRS Morningstar concludes that a hypothetical increase of the base-case PD by 20% or a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a confirmation of the Series A Notes at AA (sf) and a downgrade of the Series B Notes to CCC (sf) or a confirmation at CCC (high) (sf), respectively. A scenario combining both an increase in the base-case PD by 10% and a decrease in the base-case recovery rate by 10%, ceteris paribus, would also lead to a confirmation of the Series A Notes at AA (sf) and a downgrade of the Series B Notes to CCC (sf).

For further information on DBRS Morningstar 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 GmbH are subject to EU and US regulations only.

Lead Analyst: Alfonso Candelas, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: CX9: 21 November 2017; CX10: 20 November 2018

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

The rating methodologies 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
-- Rating CLOs Backed by Loans to European SMEs
-- Rating CLOs and CDOs of Large Corporate Credit
-- Cash Flow Assumptions for Corporate Credit Securitisations
-- 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 Morningstar 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 these credits or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.