DBRS Morningstar Upgrades and Confirms Ratings on Three BBVA Consumo Transactions

DBRS Ratings GmbH (DBRS Morningstar) upgraded and confirmed the ratings on the bonds issued by BBVA Consumo 9 FT (BBVA C9), BBVA Consumo 10 FT (BBVA C10), and BBVA Consumo 11 FT (BBVA C11) (together, the Issuers), as follows:

BBVA C9
-- Series A Notes upgraded to AA (high) (sf) from AA (sf)
-- Series B Notes upgraded to A (high) (sf) from BBB (sf)

BBVA C10
-- Series A Notes upgraded to AA (high) (sf) from AA (sf)
-- Series B Notes upgraded to AA (sf) from AA (low) (sf)
-- Series C Notes upgraded to A (high) (sf) from A (low) (sf)

BBVA C11
-- Series A Notes confirmed at AA (low) (sf)
-- Series B Notes confirmed at A (low) (sf)

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 December 2021 payment dates of each transaction.
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables.
-- Current available credit enhancements 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 transactions are securitisations of Spanish consumer loan receivables originated and serviced by Banco Bilbao Vizcaya Argentaria, S.A. (BBVA). BBVA C9 closed in March 2017, BBVA C10 in July 2019, and BBVA C11 in March 2021. BBVA C9 and BBVA C10 had an initial revolving period of 18 months, which ended with the September 2018 and December 2020 payment dates, respectively.

PORTFOLIO PERFORMANCE

BBVA C9
As of the December 2021 payment date, loans two to three months in arrears represented 0.4% of the outstanding portfolio balance, down from 0.5% in December 2020. In the same period, the 90+ delinquency ratio was 1.8%, down from 2.5%, and the cumulative default ratio was 2.7%.

BBVA C10
As of the December 2021 payment date, loans two to three months in arrears represented 0.2% of the outstanding portfolio balance, stable since December 2020. In the same period, the 90+ delinquency ratio was 1.1%, down from 1.3%, and the cumulative default ratio was 1.5%.

BBVA C11
As of the December 2021 payment date, loans two to three months in arrears represented 0.1% of the outstanding portfolio balance, stable since closing in March 2021. In the same period, the 90+ days delinquency ratio was 0.65%, up from 0.0%, and the cumulative default ratio was 0.4%.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS

BBVA C9
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has maintained its base case PD and LGD assumptions at 9.3% and 79.9%, respectively.

BBVA C10
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 4.1% and 73.7%, respectively.

BBVA C11
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has maintained its base case PD and LGD assumptions at 4.1% and 73.7%, respectively.

CREDIT ENHANCEMENT
The credit enhancements to the rated notes are provided by the subordination of the junior classes and the reserve fund.

BBVA C9
As of the December 2021 payment date, credit enhancement to the Series A and Series B Notes were 54.1% and 18.0%, up from 33.0% and 11.0% in December 2020.

BBVA C10
As of the December 2021 payment date, credit enhancement to the Series A, Series B, and Series C Notes were 17.0%, 12.9%, and 7.0%, respectively, up from 10.3%, 7.4% and 3.0%, respectively, in December 2020.

BBVA C11
As of the December 2021 payment date, credit enhancement to the Series A and Series B Notes were 14.5% and 6.7%, respectively, up from 11.0% and 5.0%, respectively, at closing.

The Issuers also benefit from the reserve funds, as described below.

BBVA C9
The transaction benefits from a reserve fund of EUR 61.9 million, which is available to cover senior fees, interest, and principal on the Series A Notes and Series B Notes. The reserve fund will start amortising, subject to the floor of EUR 30.9 million, if the balance of loans in arrears for more than 90 days drops below 1% of the outstanding performing balance of receivables.

BBVA C10
The transaction benefits from a reserve fund of EUR 6.5 million which is available to cover senior expenses and interest shortfalls on the rated notes. The reserve fund started amortising upon the end of the revolving period and the amortisation of the Series A Notes. The reserve fund’s target balance equals 0.5% of the outstanding balance of the notes, floored at EUR 2.5 million.

BBVA C11
The transaction benefits from a reserve fund of EUR 125 million, corresponding to 5.0% of the outstanding notes balance and floored at EUR 62.5 million. The cash reserve covers senior costs and interest on the Series A Notes and can be used to offset defaults. Once the Series A Notes have fully amortised, the cash reserve will cover interest and principal on the Series B Notes.

BBVA acts as the account bank for the Issuers. Based on the account bank’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 transactions documents, and other mitigating factors inherent in the transactions structures, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the Series A Notes of all three transactions, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the transactions structure in Intex DealMaker.

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 ABS 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.

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.

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 the “Master European Structured Finance Surveillance Methodology” (8 February 2022).

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.

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.

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 investor reports provided by Europea de Titulización, S.A., S.G.F.T., 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 the transactions took place as follows:

BBVA C9 - On 11 March 2021, DBRS Morningstar confirmed the rating of the Series A Notes at AA (sf) and upgraded the rating of the Series B Notes to BBB (sf) from BB (high) (sf).

BBVA C10 - On 5 July 2021, DBRS Morningstar confirmed the rating of the Series A Notes at AA (sf), confirmed the rating of the Series B Notes at AA (low) (sf), and upgraded the rating of the Series C Notes to A (low) (sf) from BBB (high) (sf).

BBVA C11 - On 16 March 2021, DBRS Morningstar finalised its provisional rating of the Series A Notes at AA (low) (sf) and of the Series B Notes at A (low) (sf).

The lead analyst responsibilities for BBVA C11 have been transferred to Shalva Beshia.

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

To assess the impact of changing the transactions parameters on the ratings, 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 pools of loans for the Issuers are as follows:
-- BBVA C9 - PD of 9.3% and LGD of 79.9%
-- BBVA C10 - PD of 4.1% and LGD 73.7%
-- BBVA C11 - PD of 4.1% and LGD 73.7%

-- 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, for the Series A Notes of BBVA C9, if the LGD increases by 50%, the rating of the Series A Notes would be expected to remain at AA (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Series A Notes would be expected to remain at AA (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Series A Notes would be expected to fall to AA (sf).

BBVA C9
Series A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)

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

BBVA C10
Series A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AA (high) (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 AA (low) (sf)

Series B 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 (low) (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 A (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (sf)

Series C 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 BBB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf)

BBVA C11
Series A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD, expected rating of AA (low) (sf)
-- 50% increase in PD, expected rating of AA (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (low) (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)

Series B 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 BBB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (low) (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.

Lead Analyst: Shalva Beshia, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President

Initial Rating Date: 23 March 2017 (BBVA C9)
Initial Rating Date: 4 July 2019 (BBVA C10)
Initial Rating Date: 11 March 2021 (BBVA C11)

DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
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 (8 February 2022), https://www.dbrsmorningstar.com/research/392000/master-european-structured-finance-surveillance-methodology
-- Legal Criteria for European Structured Finance Transactions (29 July 2021), https://www.dbrsmorningstar.com/research/382171/legal-criteria-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.
-- 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.
-- 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.
-- Rating European Structured Finance Transactions Methodology (30 July 2021),
https://www.dbrsmorningstar.com/research/382486/rating-european-structured-finance-transactions-methodology
-- Rating European Consumer and Commercial Asset-Backed Securitisations (29 October 2021),
https://www.dbrsmorningstar.com/research/387042/rating-european-consumer-and-commercial-asset-backed-securitisations

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.