Press Release

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

Consumer Loans & Credit Cards

July 20, 2020

DBRS Ratings GmbH (DBRS Morningstar) confirmed its ratings on the Series A and Series B notes issued by Caixabank Consumo 3 F.T. (the Issuer) at A (high) (sf) and CC (sf), respectively.

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

The confirmations follow an annual review of the transaction and are based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies, defaults, and losses as of the June 2020 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- Current available credit enhancement to the notes to cover the expected losses at their respective rating levels;
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

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 (Disposiciones de Crédito Hipotecario). At closing, the EUR 2.5 billion portfolio consisted of loans granted to borrowers primarily in Catalonia (32.7% of the initial portfolio balance), Andalusia (17.4%), and Madrid (11.9%). The transaction closed in July 2017, with no revolving period.

PORTFOLIO PERFORMANCE
As of the June 2020 payment date, loans that were 30- to 60-days delinquent represented 1.2% of the outstanding collateral balance and 60- to 90-day delinquencies represented 0.1%, while delinquencies greater than 90 days represented 4.2%. Gross cumulative defaults were 3.3% of the original portfolio balance, with cumulative recoveries of 3.2% to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the portfolio of receivables and updated its PD and LGD assumptions to 5.9% and 65.8%, respectively, for the unsecured consumer loans in the portfolio, and to 6.8% and 9.9%, respectively, for the mortgage loans in the portfolio.

CREDIT ENHANCEMENT
The subordination of the Series B notes and the cash reserve provide credit enhancement to the Series A notes, while the sole source of credit enhancement to the Series B notes is the cash reserve, following the full repayment of the Series A notes. As of the June 2020 payment date, credit enhancement to the Series A notes increased to 27.3% from 23.2% at the time of the last annual review 12 months ago; credit enhancement to the Series B notes decreased to 4.4% from 8.4%, due to the start of amortisation of the cash reserve.

The transaction benefits from an amortising cash reserve available to cover senior expenses and all payments due on the senior-most class of notes outstanding. This reserve was funded to EUR 98.0 million at closing through a subordinated loan granted by CaixaBank, and starting from the September 2019 payment date, has been amortising to its target level of 4% of the outstanding principal balance of the Series A and Series B notes. As of the June 2020 payment date, the cash reserve was at its target of EUR 33.2 million.

CaixaBank acts as the issuer account bank provider for the transaction. 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 of AA (low), the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank 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.

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 and RMBS 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. For this transaction, DBRS Morningstar increased the expected default rate for self-employed borrowers, assumed a moderate decline in residential property prices, and an additional haircut on unsecured loan recovery rates.

On 16 April 2020 , the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were updated on 1 June 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/361868/dbrs-morningstar-global-macroeconomic-scenarios-june-update 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.

On 5 May 2020 and 8 May 2020, DBRS Morningstar published commentaries outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated RMBS and ABS transactions in Europe, respectively. For more details, please see: https://www.dbrsmorningstar.com/research/360599/european-rmbs-transactions-risk-exposure-to-coronavirus-covid-19-effect, https://www.dbrsmorningstar.com/research/360734/european-abs-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.

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 the “Master European Structured Finance Surveillance Methodology” (22 April 2020). DBRS Morningstar 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 at: http://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 investor reports provided by CaixaBank Titulización, S.G.F.T., S.A.U (the Management Company) 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 ratings, 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 this transaction took place on 22 July 2019, when DBRS Morningstar confirmed the ratings of the Series A and Series B notes at A (high) (sf) and CC (sf), respectively.

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

To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the rating (the base case):

-- DBRS Morningstar 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 of the current pool of mortgage receivables are 6.8% and 9.9%, respectively. The base case PD and LGD of the current pool of unsecured consumer loan receivables are 5.9% and 65.8%, respectively.
-- 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 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 remain at A (high) (sf).

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)
-- 50% 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 (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)

The rating on the Series B notes would not be affected by any change in either the PD of LGD.

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 U.S. regulations only.

Lead Analyst: Daniel Rakhamimov, Senior Analyst
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 18 July 2017

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: http://www.dbrsmorningstar.com/about/methodologies.

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.

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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