DBRS Morningstar Confirms and Upgrades Ratings on Two CaixaBank RMBS Transactions

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the notes issued by two CaixaBank RMBS transactions:

CaixaBank RMBS 1, FT

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

CaixaBank RMBS 2, FT

-- Class A Notes confirmed at A (sf)
-- Class B Notes confirmed at BB (high) (sf)

The ratings on the Class A Notes address the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date of each transaction. The ratings on the Class B Notes address the ultimate payment of interest and principal on or before the legal final maturity date of each transaction.

The rating actions follow an annual review of the transactions and are based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies and defaults, as of December 2020 and January 2021 payment dates for CaixaBank RMBS 1 and 2, FT, respectively.
-- Updated portfolio default rate (PD), loss given default (LGD), and expected loss assumptions on the outstanding collateral pools.
-- The credit enhancement available to the rated 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.

CaixaBank RMBS 1, FT and CaixaBank RMBS 2, FT are securitisations of first-lien residential mortgage loans and first-lien multicredito (drawn credit lines) mortgages on properties in Spain originated and serviced by CaixaBank, S.A. (CaixaBank), that closed in February 2016 and March 2017, respectively.

PORTFOLIO PERFORMANCE
CaixaBank RMBS 1, FT: As of December 2020, loans more than 90 days in arrears remained low at 1.5% of the outstanding performing portfolio collateral balance (versus 1.3% in December 2019). The cumulative default ratio was at 1.1% of the original portfolio balance (versus 0.8% December 2019).

CaixaBank RMBS 2, FT: As of January 2021, loans more than 90 days in arrears were also low at 1.5% of the outstanding performing portfolio collateral balance (versus 1.4% in January 2020). The cumulative default ratio was at 0.9% of the original portfolio balance (versus 0.6% January 2020).

PORTFOLIO ASUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis on the remaining receivables, considering updated multicredito balances, and updated its base case PD and LGD assumptions to 5.0% and 16.6% (from 5.7% and 25.6%), respectively, for CaixaBank RMBS 1, FT, and to 6.1% and 14.1% (from 7.3% and 18.7%), respectively, for CaixaBank RMBS 2, FT.

The decrease in the portfolio assumptions prompted the upgrade of the CaixaBank RMBS 1, FT Class B Notes.

CREDIT ENHANCEMENT
CaixaBank RMBS 1, FT: As of the December 2020 payment date, credit enhancement to the Class A Notes was 18.9%, up from 17.5% one year ago. The Class A Notes benefit from a reserve fund which provides liquidity support and credit support to the Class A Notes. After two years from closing, the reserve fund may amortise over the life of the transaction subject to certain amortisation triggers. The reserve fund is currently at its target level of EUR 568.0 million, which is a minimum of 8.0% of the outstanding balance of the rated notes and 4.0% of their initial balance, subject to a floor of 2.0% of that initial balance.

CaixaBank RMBS 2, FT: As of the January 2021 payment date, credit enhancement to the Class A Notes was 19.3%, up from 17.9% last year. The Class A Notes benefit from a reserve fund which provides liquidity support and credit support to the Class A Notes. After two years from closing, the reserve fund may amortise over the life of the transaction subject to the certain amortisation triggers. The reserve fund is currently at its target level of EUR 127.2 million, which is the minimum of 6.0% of the current outstanding balance of the rated notes and 4.75% of their initial balance.

The only available subordination for the Class B Notes is the reserve fund, which currently covers principal and interest payments on the Class A Notes only. However, upon payment in full of the Class A Notes, it will also become available for the Class B Notes on each transaction.

CaixaBank acts as the account bank for the transactions. Based on the account bank reference rating of CaixaBank at A (high), which is one notch below its DBRS Morningstar public Long-Term Critical Obligations Rating (COR) 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 ratings assigned to the Class A 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 continue to increase 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 its expected PD for self-employed borrowers, incorporated a moderate reduction in property values, and conducted additional sensitivity analysis to determine that the transactions benefit from sufficient liquidity support to withstand potential high levels of payment holidays in the portfolio. As of December 2020, the loans that benefit from moratorium due to the coronavirus represented 11.4% of the portfolio for CaixaBank RMBS 1,FT and 12.6% of the portfolio for CaixaBank RMBS 2, FT.

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 last updated on 28 January 2021. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/372842/global-macroeconomic-scenarios-january-2021-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 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 the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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 can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at: https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Master European Structured Finance Surveillance Methodology” (8 February 2021).

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 transactions 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 and information provided by the Management Company, CaixaBank Titulización, S.G.F.T., S.A.U., 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 actions on these transactions took place on 28 February 2020, when DBRS Morningstar confirmed its ratings at A (sf) on the Class A Notes of both transactions, and upgraded its ratings on the Class B Notes to BB (high) (sf) from BB (sf) for both transactions.

The lead analyst responsibilities for these transactions have been transferred to Helvia Meana.

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):

CaixaBank RMBS 1, FT:
-- 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 loans for the Issuer are 5.0% and 16.6%, 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 (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Series A would be expected to remain at A (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Series A would be expected to remain at A (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (sf)
-- 50% increase in LGD, expected rating of A (sf)
-- 25% increase in PD, expected rating of A (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (sf)

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

CaixaBank RMBS 2, FT:
-- 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 loans for the Issuer are 6.1% and 14.1%, 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 Class A Notes would be expected to remain at A (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to remain at A (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to remain at A (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (sf)
-- 50% increase in LGD, expected rating of A (sf)
-- 25% increase in PD, expected rating of A (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in LGD, expected rating of BB (high)(sf)
-- 25% increase in PD, expected rating of BB (high) (sf)
-- 50% increase in PD, expected rating of BB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (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:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

CaixaBank RMBS 1, FT:
Lead Analyst: Helvia Meana, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 23 February 2016

CaixaBank RMBS 2, FT:
Lead Analyst: Helvia Meana, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 20 March 2017

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

-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- Master European Structured Finance Surveillance Methodology (8 February 2021),
https://www.dbrsmorningstar.com/research/373435/master-european-structured-finance-surveillance-methodology.
-- Operational Risk Assessment for European Structured Finance Servicers (19 November 2020),
https://www.dbrsmorningstar.com/research/370270/operational-risk-assessment-for-european-structured-finance-servicers.
-- European RMBS Insight Methodology (2 April 2020) and European RMBS Insight Model v 5.0.0.1, 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.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021),
https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings

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 these credits or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.