DBRS Morningstar Assigns Provisional Ratings to Miravet 2020-1

DBRS Ratings GmbH (DBRS Morningstar) assigned the following provisional ratings to the notes to be issued by Miravet 2020-1 (the Issuer):

-- AAA (sf) to the Class A notes
-- A (sf) to the Class B notes
-- BBB (low) (sf) to the Class C notes
-- BB (sf) to the Class D notes
-- B (low) (sf) to the Class E notes (collectively with the Class A, B, C, and D notes, the Rated Notes)

DBRS Morningstar does not rate the Class X Notes or Class Z Notes. The rating of the Class A notes addresses the timely payment of interest and ultimate payment of principal by the final legal maturity date in 2065. The ratings of the Class B notes, Class C notes, Class D notes, and Class E notes address the ultimate payment of interest and principal. The Class A notes and Class X Notes benefit from an amortising liquidity reserve fund in case of interest shortfalls, which will be funded at closing with the proceeds from the Class Z Notes and the priority of payments thereafter. The reserve fund will be equal to 3.95% of the outstanding balance of the Class A notes and will be floored at 3% of the Class A notes’ initial balance. The excess amounts from the liquidity reserve fund will form part of the available funds and may provide additional credit support.

Proceeds from the issuance of the Rated Notes and part of the proceeds from the Class Z Notes will be used to purchase re-performing Spanish residential mortgage loans represented by mortgage participations and mortgage transfer certificates. The mortgage loans were originated by Catalunya Banc, S.A. (CX), Caixa d’Estalvis de Catalunya, Caixa d’Estalvis de Tarragona, and Caixa d’Estalvis de Manresa. The latter three entities were merged into Caixa d’Estalvis de Catalunya, Tarragona i Manresa, which was subsequently transferred to Catalunya Banc, S.A. by virtue of a spin-off on 27 September 2011. During 2011 and 2012, CX received a capital investment from the Fund for Orderly Bank Restructuring (FROB), effectively nationalising the bank.

As part of its later divestment from CX, the FROB sold a portfolio of loans that was transferred to a securitisation fund, FTA 2015, Fondo de Titulizacion de Activos (the 2015 Fund) via the issuance of mortgage participation and mortgage transfer certificates. Following the sale of the mortgage loans in 2015, Banco Bilbao Vizcaya Argentaria, S.A. (BBVA; DBRS Morningstar Critical Obligations Rating (COR) of AA (low)/ R-1 (middle) with Stable trends) acquired CX on 24 April 2015. Subsequently, CX was absorbed and merged with BBVA. BBVA will act as Collection Account Bank and Master Servicer with servicing operations delegated to Anticipa Real Estate, S.L.U. (Anticipa or the Servicer).

As of 31 August 2020, the current balance of the mortgage portfolio was EUR 627,747,285, with 78.8% restructured loans and 9.3% 90+ days past due delinquencies. The seasoning of the portfolio is 12.4 years. The portfolio currently has about 4.9% loans with prior ranking mortgages in the portfolio and about 1.3% loans with unknown prior ranks. The weighted-average (WA) indexed current loan-to-value (LTV) of the mortgage portfolio is 59.2%, calculated based on loans with known liens as per DBRS Morningstar’s methodology. DBRS Morningstar has assessed the historical performance of the mortgage loans and factored restructuring arrangements into its analysis by selecting an underwriting score of 4 in the European RMBS Insight Model.

The portfolio is largely concentrated in the autonomous region of Catalonia (73.5% by loan amount). CX, as the originator, was headquartered in Barcelona and focused its lending strategy in Catalonia. The concentration in Catalonia exposes the transaction to risks relating to potential regional house-price fluctuations and poor economic performance, as well as changes in regional laws. In December 2019, a decree law was approved by the Catalan Parliament with the intention to provide measures to improve access to housing in Catalonia and, in particular, to individuals in risk of “residential exclusion”. These provisions may affect the Issuer’s ability to recover proceeds on the mortgage loans; therefore, DBRS Morningstar has performed additional sensitivity analysis increasing the recovery period of part of the portfolio to assess the impact of the Catalonia law on the provisional ratings.

Multicredit loans represent 51% of the pool and permit the borrower to make additional drawdowns of up to EUR 136.9 million. The borrower may not draw down in excess of the amounts stated in the mortgage agreement. Borrower eligibility for additional drawdowns is subject to key conditions. Generally, a borrower must not be in default and restrictions are also placed on the debt-to-income ratios. Once eligibility has been established, drawdown is subject to additional criteria such as caps on the maximum drawdown amounts, maturity restrictions, and LTV caps. Because of the historically low drawdowns seen in the previously rated SRF transactions and strict drawdown conditions in this transaction, DBRS Morningstar did not consider drawdowns in its analysis. However, it stressed the servicing fees to assess the liquidity stress on the available funds.

The transaction is exposed to unhedged basis risk with the assets linked to 12-month Euribor (84.2%), Mibor (0.2%), and IRPH (15.3%). The remaining portion (0.3%) pays a fixed rate of interest. The notes are linked to three-month Euribor. The WA interest rate of the portfolio is calculated at 1.3% with the WA margin equal to 1.4%.The Servicer can renegotiate the loan terms within the portfolio, loan modifications are subject to a limit of 5% of the initial balance of the portfolio. The margin can be reduced to 50 basis points (bps) for loans linked to Euribor and -40 bps for loans linked to IRPH. The maturity of the loan cannot be extended beyond 48 months before the maximum maturity date of the mortgage loans (2059).

As of 1 July 2016, interest rate floors were no longer applied on loans from borrowers classified as consumers. There are about 97 loans with interest rate floors, amounting to 0.7% of the total portfolio outstanding balance.

BBVA is appointed Master Servicer and Collection Account Bank. At or post-closing, the servicer is expected to change from Anticipa to Pepper upon BBVA’s approval. If BBVA approves but there is a delay in the servicing transfer after closing, the servicing fees step up depending on the length of delay. However, if BBVA does not approve the transfer, Anticipa will continue servicing the portfolio with a step-up in servicing fees after five years; this step-up payment ranks junior to the repayment of the Rated Notes.

BBVA will deposit amounts received that arise from the mortgage loans with the Issuer Account Bank within one business day. Elavon Financial Services DAC (Elavon) is the Issuer Account Bank and Paying Agent for the transaction. DBRS Morningstar privately rates Elavon and has concluded that Elavon meets its minimum criteria to act in such capacity. The transaction contains downgrade provisions relating to the account bank whereby, if Elavon is downgraded below “A”, the Issuer will replace the account bank. The downgrade provision is consistent with DBRS Morningstar’s criteria for the AAA (sf) rating assigned to the Class A notes in this transaction.

To hedge the interest rate risk in the transaction, an interest rate cap with a strike rate at 2.5% will be provided by BNP Paribas (BNP Paribas; rated COR AA (high)/ R-1 (high) with Stable trends by DBRS Morningstar). DBRS Morningstar has concluded that BNP Paribas meets its minimum criteria to act in such capacity. The transaction contains downgrade provisions relating to the interest rate cap provider whereby, if BNP Paribas is downgraded below “A”, the Issuer will replace the interest rate cap provider. The downgrade provision is consistent with DBRS Morningstar’s criteria for the AAA (sf) rating assigned to the Class A notes in this transaction.

DBRS Morningstar based its rating primarily on the following analytical considerations:
-- The transaction’s capital structure, including the form and sufficiency of available credit enhancement and liquidity provisions.
-- The credit quality of the mortgage portfolio and the ability of the servicer to perform collection and resolution activities. DBRS Morningstar calculated probability of default (PD), loss given default (LGD), and expected loss outputs on the mortgage portfolio, which are used as inputs into the cash flow tool. The mortgage portfolio was analysed in accordance with DBRS Morningstar’s “European RMBS Insight Methodology” and “European RMBS Insight: Spanish Addendum" methodologies.
-- The transaction’s ability to withstand stressed cash flow assumptions and repay investors in accordance with the Terms and Conditions of the notes. The transaction structure was analysed using Intex Dealmaker.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” and the presence of legal opinions addressing the assignment of the assets to the Issuer.

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 payment holidays and delinquencies may increase in the coming months for many structured finance transactions, some meaningfully. The ratings are based on additional analysis and, where appropriate, additional stresses to expected performance as a result of the global efforts to contain the spread of the coronavirus.

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/366543/dbrs-morningstar-global-macroeconomic-scenarios-september-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, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect the ratings of DBRS Morningstar-rated RMBS in Europe. For more details please see https://www.dbrsmorningstar.com/research/360599.

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 methodologies applicable to the ratings are the “European RMBS Insight Methodology” (2 April 2020) and the “European RMBS Insight: Spanish Addendum” (26 August 2020).

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

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 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 historical performance (detailed collections, arrears levels) from April 2014 up to July 2020 and loan-level data as at 31 August 2020, provided by Anticipa and its representatives.

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.

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 rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

--In respect of the Class A notes, the PD and LGD at the AAA (sf) stress scenario of 51.68% and 40.99%, respectively, were stressed assuming a 25% and 50% increase on both the PD and LGD.
--In respect of the Class B notes, the PD and LGD at the A (sf) stress scenario of 42.63% and 32.09%, respectively, were stressed assuming a 25% and 50% increase on both the PD and LGD.
--In respect of the Class C notes, the PD and LGD at the BBB (low) (sf) stress scenario of 34.04% and 23.64%, respectively, were stressed assuming a 25% and 50% increase on both the PD and LGD.
--In respect of the Class D notes, the PD and LGD at the BB (sf) stress scenario of 27.37% and 22.24%, respectively, were stressed assuming a 25% and 50% increase on both the PD and LGD.
--In respect of the Class E notes, the PD and LGD at the B (low) (sf) stress scenario of 20.64% and 20.83%, respectively, were stressed assuming a 25% and 50% increase on both the PD and LGD.

DBRS Morningstar concludes the following impact on the Class A notes:
-- 25% increase of the PD, ceteris paribus, would lead to a rating downgrade to (AA) (high) (sf);
-- 50% increase of the PD, ceteris paribus, would lead to a rating downgrade to (A) (high) (sf);
-- 25% increase of the LGD, ceteris paribus, would lead to a rating downgrade to (A) (low) (sf);
-- 50% increase of the LGD, ceteris paribus, would lead to a rating downgrade to (BBB) (high) (sf);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a rating downgrade to (AA) (low) (sf);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a rating downgrade to (A) (sf);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a rating downgrade to (A) (high) (sf);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a rating downgrade to (BBB) (high) (sf).

DBRS Morningstar concludes the following impact on the Class B notes:
-- 25% increase of the PD, ceteris paribus, would lead to a rating downgrade to (BBB) (high) (sf);
-- 50% increase of the PD, ceteris paribus, would lead to a rating downgrade to (BBB) (sf);
-- 25% increase of the LGD, ceteris paribus, would lead to a rating downgrade to (BBB) (low) (sf);
-- 50% increase of the LGD, ceteris paribus, would lead to a rating downgrade to (BB) (high) (sf);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a rating downgrade to (BBB) (high) (sf);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a rating downgrade to (BB) (high) (sf);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a rating downgrade to (BB) (high) (sf);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a rating downgrade to (BB) (low) (sf).

DBRS Morningstar concludes the following impact on the Class C notes:
-- 25% increase of the PD, ceteris paribus, would lead to a rating change downgrade to (BB) (high) (sf);
-- 50% increase of the PD, ceteris paribus, would lead to a rating change downgrade to (BB) (low) (sf);
-- 25% increase of the LGD, ceteris paribus, would lead to a rating change downgrade to (B) (low) (sf);
-- 50% increase of the LGD, ceteris paribus, would lead to a rating change downgrade to (CCC) (sf);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a rating change downgrade to (BB) (low) (sf);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a rating change downgrade to (B) (high) (sf);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a rating change downgrade to (B) (low) (sf);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a rating change downgrade to (CC) (sf).

DBRS Morningstar concludes the following impact on the Class D notes:
-- 25% increase of the PD, ceteris paribus, would lead to a rating change downgrade to (B) (high) (sf);
-- 50% increase of the PD, ceteris paribus, would lead to a rating change downgrade to (B) (low) (sf);
-- 25% increase of the LGD, ceteris paribus, would lead to a rating change downgrade to (CCC) (sf);
-- 50% increase of the LGD, ceteris paribus, would lead to a rating change downgrade to (CCC) (sf);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a rating change downgrade to (B) (sf);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a rating change downgrade to (CC) (sf);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a rating change downgrade to (CC) (sf);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a rating change downgrade to (C) (sf).

DBRS Morningstar concludes the following impact on the Class E notes:
-- 25% increase of the PD, ceteris paribus, would lead to a rating downgrade to (CCC) (sf);
-- 50% increase of the PD, ceteris paribus, would lead to a rating downgrade to (CCC) (sf);
-- 25% increase of the LGD, ceteris paribus, would lead to a rating downgrade to (CCC) (sf);
-- 50% increase of the LGD, ceteris paribus, would lead to a rating downgrade to (CC) (sf);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a rating downgrade to (CC) (sf);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a rating downgrade to (C) (sf);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a rating downgrade to (C) (sf);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a rating downgrade to (C) (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 U.S. regulations only.

Lead Analyst: Hrishikesh Oturkar, Senior Analyst, Credit Ratings
Rating Committee Chair: David Lautier, Senior Vice President, Credit Ratings
Initial Rating Date: 10 November 2020

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.

-- 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.
-- Legal Criteria for European Structured Finance Transactions (24 September 2019),
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (24 September 2020),
https://www.dbrsmorningstar.com/research/367092/derivative-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Originators (30 September 2020), https://www.dbrsmorningstar.com/research/367603/operational-risk-assessment-for-european-structured-finance-originators
-- 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.
-- 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: 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.