DBRS Morningstar Takes Rating Actions on the Notes Issued by Three IM Cajamar Transactions

DBRS Ratings GmbH (DBRS Morningstar) took rating actions on the notes issued by IM BCC Cajamar 1 FT (Cajamar 1), IM Cajamar 5 F.T.A. (Cajamar 5), and IM Cajamar 6 F.T.A. (Cajamar 6) as follows:

Cajamar 1

-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to BB (low) (sf) from B (high) (sf)

Cajamar 5
-- Class A Notes confirmed at A (high) (sf)

Cajamar 6
-- Class A Notes confirmed at AA (sf)

The ratings on all the Class A Notes address the timely payment of interest and the ultimate payment of principal on or the final maturity date in March 2055 (Cajamar 1), June 2050 (Cajamar 5), and December 2050 (Cajamar 6). The rating on the Class B Notes of Cajamar 1 addresses the ultimate payment of interest and principal on or before the final maturity date.

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 as of the August 2020 and September 2020 payment dates;
-- Portfolio default rate (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- The current available credit enhancement to the notes to cover the expected losses assumed at their respective rating levels;
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

Cajamar 1 closed in January 2016, while Cajamar 5 and Cajamar 6 closed in September 2007 and February 2008, respectively. All three transactions are Spanish residential mortgage-backed securities transactions originated and serviced by Cajamar Caja Rural, Sociedad Cooperativa de Crédito (Cajamar).

PORTFOLIO PERFORMANCE
As of the August 2020 payment date, loans that were one to two months and two to three months delinquent represented 0.7% and 0.4% of Cajamar 1 portfolio balance, respectively, while loans more than three months delinquent represented 0.4%. Gross cumulative losses amounted to 0.3% of the aggregate original portfolio balance, with cumulative recoveries of 23.19% to date.

For Cajamar 5, as of the September 2020 payment date, loans that were one to two months and two to three months delinquent represented 1.0% and 0.6% of the portfolio balance, respectively, while loans more than three months delinquent represented 0.5%. Gross cumulative defaults amounted to 5.8% of the aggregate original portfolio balance, with cumulative recoveries of 84.0% to date.

For Cajamar 6, as of the September 2020 payment date, loans that were one to two months and two to three months delinquent represented 1.3% and 0.8% of the portfolio balance, respectively, while loans more than three months delinquent represented 0.4%. Gross cumulative defaults amounted to 8.3% of the aggregate original portfolio balance, with cumulative recoveries of 86.0% to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables in each transaction and updated its base case PD and LGD assumptions as follows:

For Cajamar 1, DBRS Morningstar has updated its base case PD and LGD assumptions to 6.2% and 31.3%, respectively.

For Cajamar 5, DBRS Morningstar has updated its base case PD and LGD assumptions to 2.8% and 4.7%, respectively.

For Cajamar 6, DBRS Morningstar has updated its base case PD and LGD assumptions to 3.4% and 11.9%, respectively.

CREDIT ENHANCEMENT
For each transaction, credit enhancement to the rated notes is provided by the subordination of junior classes and a cash reserve.

For Cajamar 1, the Class A Notes credit enhancement stood at 30.61% as of the August 2020 payment date, up from 27.9% one year ago. The Class B Notes credit enhancement was 0.0%. When the Class A Notes are paid in full, the cash reserve will also provide credit support to the Class B Notes.

For Cajamar 5 and Cajamar 6, as of the September 2020 payment date, the Class A Notes credit enhancement remained at 10.7% and 16.9%, respectively. Both are stable given the current pro rata amortisation of the Class A, Class B, Class C, and Class D notes in both transactions.

For Cajamar 1, the transaction benefits from a nonamortising cash reserve, sized at 3% of the initial balance of the Class A and Class B notes. It is currently at its target balance of EUR 22.5 million. The reserve provides liquidity support and credit support to the Class A Notes until the Class A Notes are paid in full after which time the cash reserve will be available to support the Class B Notes.

For Cajamar 5, the transaction benefits from an amortising cash reserve, currently at its floor and target balance of EUR 7.5 million. For Cajamar 6, the transaction benefits from an amortising cash reserve, currently at its target level of EUR 30.2 million. Both reserves provide liquidity and credit support to the Class A, Class B, Class C, and Class D notes.

Banco Santander SA (Santander) acts as the account bank for the three transactions. Based on Santander’s reference rating of A (high), 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 structures, DBRS Morningstar considers the risk arising from the exposure to Santander to be consistent with the ratings of the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the transaction structures 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 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 these transactions, DBRS Morningstar increased the expected default rate for self-employed borrowers and assumed a moderate reduction in residential property values. As of August 2020, the loans that benefit from moratorium due to coronavirus represented 0.7% of the portfolio for Cajamar 1, 1.1% of the portfolio for Cajamar 5, and 0.8% of the portfolio for Cajamar 6.

The DBRS Morningstar Sovereign group released on 16 April 2020 a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 10 September 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/366542/global-macroeconomic-scenarios-september-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings.
DBRS Morningstar’s analysis considered impacts consistent with the moderate scenario in the referenced reports.

On 5 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated RMBS transactions in Europe. For more details please see https://www.dbrsmorningstar.com/research/360599/european-rmbs-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 transactions 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 these transactions 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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include reports provided by InterMoney Titulización, S.G.F.T., S.A. 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 for the three transactions. However, this did not impact the rating analyses.

DBRS Morningstar considers the data and information available to it for the purpose 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 these transactions took place on 4 October 2019 when DBRS Morningstar confirmed the rating on the Class A Notes of Cajamar 1 at AAA (sf), and upgraded the ratings on the Class B Notes of Cajamar 1, Class A Notes of Cajamar 5, and Class A Notes of Cajamar 6 to B (high) (sf), A (high) (sf), and AA (sf), respectively, from C (sf), A (sf), and AA (low) (sf), respectively.

The lead analyst responsibilities for Cajamar 1 have been transferred to Petter Wettestad.

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 ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the ratings (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.

-- For Cajamar 1, the base case PD and LGD assumptions for the collateral pool are 6.2% and 31.3%, respectively.
-- For Cajamar 5, the base case PD and LGD assumptions for the collateral pool are 2.8% and 4.7%, respectively.
-- For Cajamar 6, the base case PD and LGD assumptions for the collateral pool are 3.4% and 11.9%, respectively
-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumptions. For example, if the LGD increases by 50%, the rating of the Class A Notes of Cajamar 1 would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes of Cajamar 1 would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and the LGD increase by 50%, the rating of the Class A Notes of Cajamar 1 would be expected to be downgraded to AA (high) (sf).

Cajamar 1 Class A Notes Risk Sensitivity:

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

Cajamar 1 Class B Notes Risk Sensitivity: -- 25% increase in LGD, expected rating of BB (low) (sf) -- 50% increase in LGD, expected rating of B (high) (sf) -- 25% increase in PD, expected rating of BB (low) (sf) -- 50% increase in PD, expected rating of B (high) (sf) -- 25% increase in PD and 25% increase in LGD, expected rating of B (high) (sf) -- 25% increase in PD and 50% increase in LGD, expected rating of B (high) (sf) -- 50% increase in PD and 25% increase in LGD, expected rating of B (high) (sf) -- 50% increase in PD and 50% increase in LGD, expected rating of B (sf)

Cajamar 5 Class 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 (low) (sf)

Cajamar 6 Class A Notes Risk Sensitivity:

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

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 are subject to EU and U.S. regulations only.

Cajamar 1

Lead Analyst: Petter Wettestad, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 15 January 2016

Cajamar 5 and Cajamar 6

Lead Analyst: Alfonso Candelas, Senior Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date of Cajamar 5: 23 May 2013
Initial Rating Date of Cajamar 6: 6 September 2013

DBRS Ratings GmbH
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Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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

-- Master European Structured Finance Surveillance Methodology (22 April 2020), https://www.dbrsmorningstar.com/research/359884/master-european-structured-finance-surveillance-methodology.
-- 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.
-- European RMBS Insight Methodology (2 April 2020) and European RMBS Insight Model v 4.3.1.0,
https://www.dbrsmorningstar.com/research/359192/european-rmbs-insight-methodology.
-- European RMBS Insight: Spanish Addendum (26 August 2020),
https://www.dbrsmorningstar.com/research/366107/european-rmbs-insight-spanish-addendum.
-- Interest Rate Stresses for European Structured Finance Transactions (28 September 2020)
https://www.dbrsmorningstar.com/research/367292/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 https://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