DBRS Morningstar Finalises Provisional Ratings on Caixabank Consumo 5, FT

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional ratings on the following series of notes issued by Caixabank Consumo 5, FT (the Issuer):

-- Series A Notes at AA (low) (sf)
-- Series B Notes at B (low) (sf)

The rating on the Series A Notes addresses the timely payment of interest and the ultimate repayment of principal by the legal final maturity date in October 2054. The rating on the Series B Notes addresses the ultimate payment of interest and the ultimate repayment of principal by the legal final maturity date.

DBRS Morningstar based its ratings on a review of the following analytical considerations:
-- The transaction’s capital structure, including form and sufficiency of available credit enhancement.
-- Credit enhancement levels are sufficient to support DBRS Morningstar’s projected expected net losses under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms of the notes.
-- The seller’s, originator’s, and servicer’s financial strength and their capabilities with respect to originations, underwriting, and servicing.
-- The other parties’ financial strength with regard to their respective roles.
-- DBRS Morningstar’s operational risk review of Caixabank S.A. (Caixabank), which it deemed to be an acceptable servicer.
-- The credit quality, diversification of the collateral, and historical and projected performance of the seller’s portfolio.
-- DBRS Morningstar’s current sovereign rating of the Kingdom of Spain at “A” with a Stable trend.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology, and the presence of legal opinions that address the true sale of the assets to the Issuer.

The transaction represents the issuance of Series A Notes and Series B Notes backed by a portfolio of approximately EUR 3.55 billion of fixed- and floating-rate receivables related to consumer loans granted by Caixabank (the originator) to private individuals residing in Spain for the purchase of consumer goods or services. The originator will also service the portfolio.

The transaction allocates payments on a combined interest and principal priority of payments basis and benefits from an amortising EUR 177.5 million cash reserve funded through a subordinated loan. The cash reserve can be used to cover senior costs, interest, and principal on the Series A Notes. Once the Series A Notes have fully amortised, the cash reserve will cover interest and principal on the Series B Notes.

The repayment of the notes is sequential: Series B Notes will start to amortise once the Series A Notes have amortised in full. Note repayment will start on the first payment date in January 2021.

Interest and principal payments on the notes are made quarterly on the 20th of January, April, July, and October. The Series A Notes pay a fixed interest rate of 0.75% and the Series B Notes pay a fixed interest rate of 1.00%. The relatively low interest rate risk arising from the mismatch between the Issuer’s liabilities and the portfolio is not hedged.

Caixabank acts as the account bank for the transaction. Based on the DBRS Morningstar rating of Caixabank at “A” (Critical Obligations Rating at AA (low)), the downgrade provisions outlined in the transaction documents, and structural mitigants inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to Caixabank to be consistent with the rating assigned to the Series A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the transaction structure in Intex DealMaker, considering the default rates at which the notes did not return all specified cash flows.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many ABS transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus.

On 16 April 2020, the DBRS Morningstar Sovereign group published its outlook on the impact to key economic indicators for the 2020-22 period. These scenarios were updated on 1 June 2020. For details see the following commentaries: https://www.dbrsmorningstar.com/research/359679/global-macroeconomic-scenarios-implications-for-credit-ratings and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

For more information on DBRS Morningstar considerations for European ABS transactions and Coronavirus Disease (COVID-19), please see the following commentary: https://www.dbrsmorningstar.com/research/360734.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is “Rating European Consumer and Commercial Asset-Backed Securitisations” (13 January 2020).

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

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis is based on the worst-case replenishment criteria set forth in the transaction legal documents.

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

These may be found at: https://www.dbrsmorningstar.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.dbrsmorningstar.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include the Originator, the Issuer, and Caixabank Titulización S.G.F.T., S.A.U.

DBRS Morningstar received default vintage data (more than 90 days in arrears) for the period Q3 2015 to Q1 2020. The data was split between standard consumer loans and preapproved consumer loans. DBRS Morningstar received the same set of information for recoveries for more than 90 days in arrears.

Data received by DBRS Morningstar was consistently split between defaults and recoveries for standard and preapproved loans, according to transaction documents. Stratification tables and portfolio loan-by-loan data were also provided as at the end of May 2020.

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

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.

These ratings concern a newly issued financial instrument. These are the first DBRS Morningstar ratings on this financial instrument.

This is the first rating action since the Initial Rating Date.

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

To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios, as compared with the parameters used to determine the ratings.

-- Probability of default (PD) used: Expected PD of 24.5% and 6.27%, respectively, for AA (low) (sf) and B (low) (sf) scenarios, on a 25% and 50% increase in the applicable PD.
-- Recovery rate used: Expected recovery rate of 26.78%.
-- Loss given default (LGD) used: Expected LGD of 79.47% and 73.22%, respectively, for AA (low) (sf) and B (low) (sf) scenarios, on a 25% and 50% increase in the applicable LGD.

Scenario 1: A 25% increase in the expected default.
Scenario 2: A 50% increase in the expected default.
Scenario 3: A 25% increase in the expected LGD.
Scenario 4: A 25% increase in the expected default and a 25% increase in the expected LGD.
Scenario 5: A 50% increase in the expected default and a 25% increase in the expected LGD.
Scenario 6: A 50% increase in the expected LGD.
Scenario 7: A 25% increase in the expected default and a 50% increase in the expected LGD.
Scenario 8: A 50% increase in the expected default and a 50% increase in the expected LGD.

DBRS Morningstar concludes that the expected ratings under the eight stress scenarios are
-- Series A Notes: A (sf), A (low) (sf), A (low) (sf), BBB (high) (sf), BBB (low) (sf), A (low) (sf), BBB (high) (sf), and BBB (low) (sf).
-- Series B Notes: no quantitative rating for any scenarios.
For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings GmbH, Sucursal en España are subject to EU and U.S. regulations only.

Lead Analyst: María López, Senior Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 18 June 2020

DBRS Ratings GmbH, Sucursal en España
Calle del Pinar, 5
28006 Madrid
Spain
Tel. +34 (91) 903 6500

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500

Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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

--Rating European Consumer and Commercial Asset-Backed Securitisations (13 January 2020)
https://www.dbrsmorningstar.com/research/355533/rating-european-consumer-and-commercial-asset-backed-securitisations.
--Legal Criteria for European Structured Finance Transactions (11 September 2019)
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
--Operational Risk Assessment for European Structured Finance Servicers (28 February 2020)
https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers.
--Operational Risk Assessment for European Structured Finance Originators (28 February 2020) https://www.dbrsmorningstar.com/research/357430/operational-risk-assessment-for-european-structured-finance-originators.
--Interest Rate Stresses for European Structured Finance Transactions (10 October 2019)
https://www.dbrsmorningstar.com/research/351557/interest-rate-stresses-for-european-structured-finance-transactions.
--Derivative Criteria for European Structured Finance Transactions (26 September 2019)
https://www.dbrsmorningstar.com/research/350907/derivative-criteria-for-european-structured-finance-transactions.
--Rating European Structured Finance Transactions Methodology (28 February 2020)
https://www.dbrsmorningstar.com/research/357428/rating-european-structured-finance-transactions-methodology.

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

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