DBRS Morningstar Confirms AAA Ratings of CaixaBank S.A. Covered Bonds

DBRS Ratings GmbH (DBRS Morningstar) confirmed its AAA ratings on the outstanding Cédulas Hipotecarias (CH or the Spanish mortgage covered bonds) issued under the the CaixaBank S.A. Covered Bonds programme (CaixaBank CH or the Programme). This rating action follows the completion of a full review of the ratings. At the same time, DBRS Morningstar discontinued its rating on Cedulas Hipotecarias - ES0414970402, which matured on 4 June 2019.

The ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of AA (low), which is CaixaBank’s Long Term Critical Obligations Rating. CaixaBank is the Issuer and Reference Entity (RE) for the Programme.
-- A Legal and Structuring Framework (LSF) Assessment of “Average” associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of BBB (high), which is the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L).
-- An LSF-L of AA. In DBRS Morningstar’s view, CaixaBank CH’s LSF-L is limited to one notch above the CBAP.
-- A two-notch uplift for high recovery prospects.
-- A level of overcollateralisation (OC) of 58.2% to which DBRS Morningstar gives credit, which is the minimum level observed in the last 12 months adjusted by a scaling factor of 0.85.

The transaction was analysed with the DBRS Morningstar European Covered Bond Cash Flow Tool. 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 (CP).

Everything else being equal, a one-notch downgrade of the CBAP would lead to a one-notch downgrade of the LSF-L, resulting in a one-notch downgrade of the covered bonds rating. In addition, all else unchanged, the CH ratings would be downgraded if any of the following occurred: (1) the CPCA was downgraded below BBB (high); (2) the sovereign rating of the Kingdom of Spain was downgraded below A (low); (3) the LSF assessment associated with the Programme was downgraded; (4) the quality of the CP and the level of OC 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 caused the currently estimated market value spreads to increase.

The total outstanding amount of CH under the programme is currently EUR 49.89 billion, while as of September 2019 the aggregate balance of mortgages in the CP was EUR 88.19 billion. This resulted in a total estimated OC of 76.8%. As of September 2019, the eligible CP stood at EUR 65.98 billion, resulting in an estimated eligible OC of 32.3%.

Spanish covered bonds are backed by the entire mortgage book of the bank, except mortgage loans pledged to securitisations and bonos hipotecarios. As of 30 September 2019, the CP comprises 1,178,640 mortgage loans, with a weighted-average current unindexed loan-to-value ratio of 55.3%. The pool is composed of residential (77.6%), commercial (15.8%), developer (5.9%) and land (0.6%) loans. It is geographically diversified, with higher concentrations in Catalonia (29.1%), Andalusia (16.3%), and Madrid (16.1%). The pool is 101 months seasoned. Approximately 0.83% of the pool assets were originated in a currency other than euros.

As is customary in the Spanish market, CH holders do not receive the benefit of any swap contract to hedge the mismatches between the interest yield by the CP (78.9% floating rate linked to different indexes and resets) and the interest due on the CH (35.4% paying fixed rate and 64.6% floating rate linked to different indexes and resets). This risk is mitigated by the OC available and accounted for in the cash flow analysis.

The two foreign-currency CH amount to a nominal of USD 966.2 million, equivalent to roughly EUR 887 million at the spot rate as of 31 December 2019 (or 1.8% of the CH outstanding). Of the loans, 0.8% were originated in a currency other than euros. DBRS Morningstar considers this exposure to be negligible and to be mitigated by the available OC.

The DBRS Morningstar-calculated WA life of the assets is approximately nine years while that of the covered bonds is approximately 4.8 years. This generates an asset-liability mismatch that is mitigated by the available OC.

DBRS Morningstar has assessed the LSF related to the Programme as “Average” according to its “Rating and Monitoring Covered Bonds” methodology. For more information, please refer to DBRS Morningstar’s commentaries “DBRS Assigns Legal and Structuring Framework Assessment to Spanish Mortgage Covered Bonds Programmes” and “Spanish Mortgage Covered Bonds: Legal and Structuring Framework Review”, both available at www.dbrs.com.

For further information on the Programme, please refer to the rating report at www.dbrs.com.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is “Rating and Monitoring Covered Bonds”.

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the surveillance section of 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 “Global Methodology for Rating Sovereign Governments” methodology at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include stratification tables of the cover pool and dynamic performance data on CaixaBank’s mortgage book dynamic provided by the Issuer that allowed DBRS Morningstar to further assess the portfolio.

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

At the time of the initial ratings, DBRS Morningstar was not 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 this transaction took place on 17 May 2019, when DBRS Morningstar assigned a rating to a new issuance of Caixabank´s CH.

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

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, Sucursal en España are subject to EU and US regulations only.

Lead Analyst: Covadonga Aybar, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 20 January 2016

DBRS Ratings GmbH, Sucursal en España
Calle del Pinar, 5
28006 Madrid
Spain

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.

-- Rating and Monitoring Covered Bonds
-- Rating and Monitoring Covered Bonds Addendum: Market Value Spreads
-- Global Methodology for Rating Banks and Banking Organisations
-- Legal Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- European RMBS Insight Methodology
-- European RMBS Insight: 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 SMEs
-- Global Methodology for Rating Sovereign Governments

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