DBRS Morningstar Assigns Ratings to Clavel Residential DAC

DBRS Ratings GmbH (DBRS Morningstar) assigned ratings to the following classes of notes issued by Clavel Residential DAC (the Issuer):

-- Class A Notes at AAA (sf)
-- Class B Notes at AA (low) (sf)
-- Class C Notes at A (low) (sf)
-- Class D Notes at BBB (low) (sf)
-- Class E Notes at BB (low) (sf)
-- Class F Notes at B (low) (sf)

The rating on the Class A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the final maturity date in 2062. The rating on the Class B Notes addresses the timely payment of interest once it becomes the most senior note outstanding and the ultimate payment of principal on or before the final maturity date. The ratings on the Class C, Class D, Class E, and Class F Notes (together with Class A Notes and Class B Notes, the Rated Notes) address the ultimate payment of interest and the ultimate repayment of principal on or before the final maturity date. DBRS Morningstar did not assign ratings to the Class Z Notes (together with the Rated Notes, the Notes).

The Notes will be issued at closing to finance the purchase of reperforming Spanish residential mortgage loans represented by mortgage participations and mortgage transfer certificates. Catalunya Banc, S.A. (Catalunya Banc), Caixa d’Estalvis de Catalunya, Caixa d’Estalvis de Tarragona, and Caixa d’Estalvis de Manresa originated the mortgage loans. The latter three entities merged into Caixa d’Estalvis de Catalunya, Tarragona i Manresa (Catalunya Caixa), which subsequently transferred to Catalunya Banc via spin-off on 27 September 2011. During 2011 and 2012, Catalunya Banc received a capital investment from the Fund for Orderly Bank Restructuring (FROB), effectively nationalising the bank.

As part of its divestment in Catalunya Banc, the FROB sold a portfolio of loans transferred to a securitisation fund, FTA 2015, Fondo de Titulización de Activos, via the issuance of mortgage participations and mortgage transfer certificates, which represent the legal and economic interest in the mortgage loans. Following the sale of these mortgage loans on 15 April 2015, Banco Bilbao Vizcaya Argentaria, S.A. (BBVA; rated A (high) with a Stable trend by DBRS Morningstar) acquired Catalunya Banc on 24 April 2015. In September 2016, Catalunya Banc was absorbed and merged with BBVA.

The Notes, which are all collateralized, will be paid sequentially. Credit enhancement is provided in the form of overcollateralisation. A liquidity reserve fund will be fully funded at closing with the proceeds from the Rated Notes. The reserve fund will provide liquidity support to the Class A Notes in case of interest shortfall and may provide additional credit support when excess is available. The reserve fund is also available to cover senior expenses. The reserve fund will be equal to 3.0% of the outstanding balance of the Class A Notes and will be floored at 2.0% of the Class A Notes’ initial balance. Excess amounts from the reserve fund will form part of the available funds and may provide additional credit support.

The Rated Notes will pay interest linked to three-month Euribor on a quarterly basis. Following the payment date in February 2025 (the step-up date), the margin payable on the Rated Notes will increase. Interests on the Rated Notes, except for those on Class A Notes, can be deferred to a lower priority in the waterfall subject to portfolio cumulative default triggers.

BBVA will act as the Collection Account Bank and Master Servicer, with servicing operations delegated to Anticipa Real Estate, S.L.U. (Anticipa or the Servicer). BBVA will deposit amounts it receives from the mortgage loans into the Issuer Account Bank on a monthly basis.

Elavon Financial Services DAC (Elavon) is the Issuer Account Bank and Paying Agent for this transaction. DBRS Morningstar privately rates Elavon and 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 Issuer Account Bank. The downgrade provisions are consistent with DBRS Morningstar’s criteria for the AAA (sf) rating assigned to the Class A Notes in this transaction.

BNP Paribas SA (BNP Paribas; rated AA (low) with a Stable trend by DBRS Morningstar) will provide an interest rate cap with a strike rate that starts at 0.5% and increases over time. DBRS Morningstar 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. The downgrade provisions are consistent with DBRS Morningstar’s criteria for the AAA (sf) rating assigned to the Class A Notes in this transaction.

DBRS Morningstar was provided with a portfolio equal to EUR 175.6 million as of 31 January 2022 (the cut-off date), which consisted of 3,829 loans (2,837 loans excluding those with zero current balance) extended to 1,617 main borrowers. Of the portfolio balance, 92.02% of the loans were restructured while, as of the cut-off date, 66.25% were performing, 17.76% were no more than one month in arrears, 8.80% were between one and three months in arrears, and 7.19% were more than three months in arrears. DBRS Morningstar assessed the historical performance of the mortgage loans and factored restructuring arrangements into its analysis by selecting an underwriting score of 5 in its European RMBS Insight Model.

The weighted-average (WA) seasoning is 12.2 years whereas the WA remaining term is 21.9 years. The WA original loan-to-value (LTV) ratio stands at 79.7% whereas the WA current indexed LTV is 58.4%.

The mortgage portfolio is highly concentrated (73.5%) in the autonomous region of Catalonia mainly because the original lenders were headquartered in Catalonia. The concentration in Catalonia exposes the transaction to risks related to potential regional house-price fluctuations and poor economic performance, as well as changes in regional laws. Specifically, Law 24/2015, in force since August 2015, obliges large landlords to offer seven years of social rent to vulnerable families that cannot pay. This provision may affect the Issuer’s ability to recover proceeds on the loan. DBRS Morningstar performed additional sensitivity analysis to account for the potential risk of this Catalonian law because of the transaction's high geographic concentration in the region by increasing the recovery lag on a portion of defaulted loans based on concentration in the region and the LTV.

Currently, 81.3% of the portfolio comprises floating-rate loans linked to 12-month Euribor, 18.2% floating-rate loans linked to other Spanish indices (either IRPH or TRH), and the remaining 0.4% comprises fixed-rate loans. The WA coupon of the mortgages is 1.43% and the WA margin is 1.63%. The Notes are floating rate linked to three-month Euribor. The basis risk mismatch will remain unhedged. DBRS Morningstar took basis risk into account in its cash flow analysis.

Of the pool, 55.36% consists of multicredit loans that permit the borrower to make additional drawdowns of up to EUR 17.9 million. The additional drawdowns are not funded and will be provided by available funds or by the seller in case of insufficient funds. The borrower may not draw down more than the amounts stated in the mortgage agreement. Drawdowns are possible under stricter performance requirements, and historical drawdowns were low. DBRS Morningstar considered drawdowns in its assessment.

Currently, there are no loans in grace period in the portfolio. However, 25.59% of the pool consists of loans that permit the borrower to opt for a principal grace period of up to 36 months. Principal grace periods are possible under strict performance requirements, and historically these were low. DBRS Morningstar considered them in its assessment.

The age of the borrowers at loans’ maturity will be high on average. Of the portfolio balance, 10.42% of the borrowers will be more than 75 years old in ten years or less (excluding loans maturing during that period). However, these loans typically have low current LTVs, low current balance (together with high equity built), and low monthly instalments (together with the fact that there is typically more than one debtor under the loan), factors acting as mitigants.

The Servicer can renegotiate the terms of the loans that are less than three months in arrears with the borrowers without the Issuer's authorisation, subject to the satisfaction of certain conditions. Permitted variations are limited to 5% of the initial pool balance and are limited to margin reduction, maturity extension, and capitalisation of ordinary interests fallen due. DBRS Morningstar extended the maturity and decreased the margin for loans representing 5% of the portfolio in its cash flow analysis.

RATING RATIONALE
DBRS Morningstar based its ratings on the following analytical considerations:
-- The transaction capital structure and 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 was provided with historical mortgage performance data as well as loan-level data for the mortgage portfolio. DBRS Morningstar calculated probability of default (PD), loss given default (LGD), and expected loss levels on the mortgage portfolio, which it uses as inputs in the cash flow tool. DBRS Morningstar analysed the mortgage portfolio in accordance with its “European RMBS Insight Methodology” and “European RMBS Insight: Spanish Addendum”.
-- The transaction’s ability to withstand stressed cash flow assumptions and repay the noteholders according to the terms and conditions in the transaction documents. DBRS Morningstar analysed the transaction structure using Intex DealMaker. DBRS Morningstar considered additional sensitivity scenarios of 0% conditional repayment rate stress.
-- The transaction parties’ financial strength to fulfil their respective roles and the structural mitigants in place to avoid potential payment disruptions caused by operational risk, such as downgrade and replacement language in the transaction documents and the liquidity reserve account.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology as well as the expectation of the appropriate legal opinions that will address the assignment of the assets to the Issuer.
-- DBRS Morningstar’s sovereign rating on the Kingdom of Spain of “A” with a Stable trend as of the date of this press release.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an immediate economic contraction, leading in some cases to 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 structured finance transactions. The ratings are based on additional analysis to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar incorporated an increase in default probability of self-employed borrowers in its analysis and conducted additional analysis to determine the transaction benefits from sufficient liquidity support in case of high level of payment moratoriums in the portfolio. In addition, DBRS Morningstar assumed a moderate decline in residential property prices.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 9 December 2021. DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/389454/baseline-macroeconomic-scenarios-for-rated-sovereigns-december-2021-update and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

On 14 June 2021, DBRS Morningstar updated its 5 May 2020 commentary outlining the impact of the coronavirus crisis on the performance of DBRS Morningstar-rated RMBS transactions in Europe one year on. For more details, please see: https://www.dbrsmorningstar.com/research/380094/the-impact-of-covid-19-on-european-mortgage-performance-one-year-on and https://www.dbrsmorningstar.com/research/360599/european-rmbs-transactions-risk-exposure-to-coronavirus-covid-19-effect.

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 methodologies applicable to the ratings are the “European RMBS Insight Methodology” (3 June 2021) and the “European RMBS Insight: Spanish Addendum” (6 July 2021).

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.

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.

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/381451/global-methodology-for-rating-sovereign-governments.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The sources of data and information used for these ratings include historical performance data from April 2014 up to December 2021 and loan-level data as at 31 January 2022, 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 newly issued financial instruments. These are the first DBRS Morningstar ratings on these financial instruments.

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 of 61.9% and LGD of 35.6%, corresponding to a AAA (sf) stress scenario, were stressed assuming 25% and 50% increase on the PD and LGD.
-- In respect of the Class B Notes, the PD of 56.3% and LGD of 30.3%, corresponding to a AA (low) (sf) stress scenario, were stressed assuming 25% and 50% increase on the PD and LGD.
-- In respect of the Class C Notes, the PD of 50.4% and LGD of 25.8%, corresponding to an A (low) (sf) stress scenario, were stressed assuming 25% and 50% increase on the PD and LGD.
-- In respect of the Class D Notes, the PD of 44.0% and LGD of 16.4%, corresponding to a BBB (low) (sf) stress scenario, were stressed assuming 25% and 50% increase on the PD and LGD.
-- In respect of the Class E Notes, the PD of 34.3% and LGD of 14.8%, corresponding to a BB (low) (sf) stress scenario, were stressed assuming 25% and 50% increase on the PD and LGD.
-- In respect of the Class F Notes, the PD of 25.8% and LGD of 13.8%, corresponding to a B (low) (sf) stress scenario, were stressed assuming 25% and 50% increase on the PD and LGD.

Class A Notes Risk Sensitivity:
-- A hypothetical increase of the PD of 25%, ceteris paribus, would lead to a downgrade to AA (sf).
-- A hypothetical increase of the PD of 50%, ceteris paribus, would lead to a downgrade to A (high) (sf).
-- A hypothetical increase of the LGD of 25%, ceteris paribus, would lead to a downgrade to A (high) (sf).
-- A hypothetical increase of the LGD of 50%, ceteris paribus, would lead to a downgrade to A (sf).
-- A hypothetical increase of the PD of 25% and LGD by 25%, ceteris paribus, would lead to a downgrade to A (high) (sf).
-- A hypothetical increase of the PD of 25% and LGD by 50%, ceteris paribus, would lead to a downgrade to A (low) (sf).
-- A hypothetical increase of the PD of 50% and LGD by 25%, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- A hypothetical increase of the PD of 50% and LGD by 50%, ceteris paribus, would lead to a downgrade to BBB (high) (sf).

Class B Notes Risk Sensitivity:
-- A hypothetical increase of the PD of 25%, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- A hypothetical increase of the PD of 50%, ceteris paribus, would lead to a downgrade to BB (high) (sf).
-- A hypothetical increase of the LGD of 25%, ceteris paribus, would lead to a downgrade to A (high) (sf).
-- A hypothetical increase of the LGD of 50%, ceteris paribus, would lead to a downgrade to A (low) (sf).
-- A hypothetical increase of the PD of 25% and LGD by 25%, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- A hypothetical increase of the PD of 25% and LGD by 50%, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- A hypothetical increase of the PD of 50% and LGD by 25%, ceteris paribus, would lead to a downgrade to BB (high) (sf).
-- A hypothetical increase of the PD of 50% and LGD by 50%, ceteris paribus, would lead to a downgrade to BB (high) (sf).

Class C Notes Risk Sensitivity:
-- A hypothetical increase of the PD of 25%, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- A hypothetical increase of the PD of 50%, ceteris paribus, would lead to a downgrade to BBB (low) (sf).
-- A hypothetical increase of the LGD of 25%, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- A hypothetical increase of the LGD of 50%, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- A hypothetical increase of the PD of 25% and LGD by 25%, ceteris paribus, would lead to a downgrade to BBB (sf).
-- A hypothetical increase of the PD of 25% and LGD by 50%, ceteris paribus, would lead to a downgrade to BB (high) (sf).
-- A hypothetical increase of the PD of 50% and LGD by 25%, ceteris paribus, would lead to a downgrade to BB (high) (sf).
-- A hypothetical increase of the PD of 50% and LGD by 50%, ceteris paribus, would lead to a downgrade to BB (high) (sf).

Class D Notes Risk Sensitivity:
-- A hypothetical increase of the PD of 25%, ceteris paribus, would lead to a downgrade to BB (high) (sf).
-- A hypothetical increase of the PD of 50%, ceteris paribus, would lead to a downgrade to BB (low) (sf).
-- A hypothetical increase of the LGD of 25%, ceteris paribus, would lead to a downgrade to BB (high) (sf).
-- A hypothetical increase of the LGD of 50%, ceteris paribus, would lead to a downgrade to BB (high) (sf).
-- A hypothetical increase of the PD of 25% and LGD by 25%, ceteris paribus, would lead to a downgrade to BB (low) (sf).
-- A hypothetical increase of the PD of 25% and LGD by 50%, ceteris paribus, would lead to a downgrade to B (high) (sf).
-- A hypothetical increase of the PD of 50% and LGD by 25%, ceteris paribus, would lead to a downgrade to B (high) (sf).
-- A hypothetical increase of the PD of 50% and LGD by 50%, ceteris paribus, would lead to a downgrade to B (sf).

Class E Notes Risk Sensitivity:
-- A hypothetical increase of the PD of 25%, ceteris paribus, would lead to a downgrade to B (high) (sf).
-- A hypothetical increase of the PD of 50%, ceteris paribus, would lead to a downgrade to B (low) (sf).
-- A hypothetical increase of the LGD of 25%, ceteris paribus, would lead to a downgrade to B (high) (sf).
-- A hypothetical increase of the LGD of 50%, ceteris paribus, would lead to a downgrade to B (sf).
-- A hypothetical increase of the PD of 25% and LGD by 25%, ceteris paribus, would lead to a downgrade to B (low) (sf).
-- A hypothetical increase of the PD of 25% and LGD by 50%, ceteris paribus, would lead to a downgrade to CCC (sf).
-- A hypothetical increase of the PD of 50% and LGD by 25%, ceteris paribus, would lead to a downgrade to CCC (sf).
-- A hypothetical increase of the PD of 50% and LGD by 50%, ceteris paribus, would lead to a downgrade to CCC (sf).

Class F Notes Risk Sensitivity:
-- A hypothetical increase of the PD of 25%, ceteris paribus, would lead to a downgrade to CCC (sf).
-- A hypothetical increase of the PD of 50%, ceteris paribus, would lead to a downgrade to CCC (sf).
-- A hypothetical increase of the LGD of 25%, ceteris paribus, would lead to a downgrade to CCC (sf).
-- A hypothetical increase of the LGD of 50%, ceteris paribus, would lead to a downgrade to CCC (sf).
-- A hypothetical increase of the PD of 25% and LGD by 25%, ceteris paribus, would lead to a downgrade to CCC (sf).
-- A hypothetical increase of the PD of 25% and LGD by 50%, ceteris paribus, would lead to a downgrade to CCC (sf).
-- A hypothetical increase of the PD of 50% and LGD by 25%, ceteris paribus, would lead to a downgrade to CCC (sf).
-- A hypothetical increase of the PD of 50% and LGD by 50%, ceteris paribus, would lead to NR.

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.

Lead Analyst: Tomas Rodriguez-Vigil Junco, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 8 March 2022

DBRS Ratings GmbH, Sucursal en España
Paseo de la Castellana 81
Plantas 26 & 27
28046 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: http://www.dbrsmorningstar.com/about/methodologies.

-- European RMBS Insight Methodology (3 June 2021) and European RMBS Insight Model (v.5.4.3.0.), https://www.dbrsmorningstar.com/research/379557/european-rmbs-insight-methodology.
-- European RMBS Insight: Spanish Addendum (6 July 2021), https://www.dbrsmorningstar.com/research/381224/european-rmbs-insight-spanish-addendum.
-- 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-andgovernance-risk-factors-in-credit-ratings.
-- Legal Criteria for European Structured Finance Transactions (29 July 2021), https://www.dbrsmorningstar.com/research/382171/legal-criteria-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (20 September 2021), https://www.dbrsmorningstar.com/research/384624/derivative-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2021), https://www.dbrsmorningstar.com/research/384920/interest-rate-stresses-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (16 September 2021), https://www.dbrsmorningstar.com/research/384513/operational-risk-assessment-for-european-structured-finance-servicers.
-- Operational Risk Assessment for European Structured Finance Originators (16 September 2021), https://www.dbrsmorningstar.com/research/384512/operational-risk-assessment-for-european-structured-finance-originators.

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.