Press Release

DBRS Morningstar Upgrades Ratings on IM BCC Cajamar PYME 3 FT

Structured Credit

April 08, 2022

DBRS Ratings GmbH (DBRS Morningstar) upgraded its ratings on the notes issued by IM BCC Cajamar PYME 3 FT (the Issuer) as follows:

-- Series A Notes upgraded to AA (high) (sf) from AA (low) (sf)
-- Series B Notes upgraded to B (low) (sf) from CCC (low) (sf)

The rating on the Series A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal maturity date in June 2057. The rating on the Series B Notes addresses the ultimate payment of interest and principal on or before the legal maturity date.

The upgrades follow an annual review of the transaction and are based on the following analytical considerations:
-- The portfolio performance, in terms of level of delinquencies and defaults, as of the February 2022 payment date;
-- The one-year base case probability of default (PD) and default and recovery rates on the outstanding receivables;
-- The current available credit enhancement to the notes to cover the expected losses at their respective rating levels; and
-- The current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

The transaction is a cash flow securitisation collateralised by a portfolio of secured and unsecured loans originated and serviced by Cajamar Caja Rural S.C.C. (Cajamar) to small and medium-size enterprises (SME) and self-employed individuals based in Spain. The transaction closed in April 2021.

PORTFOLIO PERFORMANCE
The portfolio is performing within DBRS Morningstar’s expectations. As of 31 January 2022, the 90+-day delinquency ratio was 0.6%. There are no defaults reported so far.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and updated its default rate and recovery assumptions on the outstanding portfolio to 33.4% and 27.9%, respectively, at the AA (high) (sf) rating level, and to 10.5% and 38.4%, respectively, at the B (low) (sf) rating level. DBRS Morningstar updated its base case PD to 2.8%, based on the updated portfolio composition and including coronavirus-related adjustments and.

CREDIT ENHANCEMENT
The credit enhancement available to the notes has increased as the transaction deleverages. As of the February 2022 payment date, the credit enhancement available to the Series A Notes and Series B Notes increased to 34.1% and 3.9%, respectively, compared with 26.0% and 3.0%, respectively, at closing. Credit enhancement is provided by the subordination of the Series B Notes and a reserve fund. The reserve fund was funded at closing through a subordinated loan and is available to cover senior fees and interest and principal on the Series A Notes and, once the Series A Notes are fully amortised, interest and principal on the Series B Notes. The reserve fund does not amortise through the life of the transaction and remains at its target level of EUR 30.0 million.

The Series B Notes interest and principal payments are subordinated to the Series A Notes payments.

Banco Santander S.A. (Santander) acts as the account bank for the transaction. Based on the account bank reference rating of A (high) on Santander (one notch below its 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 structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the transaction structure in its proprietary Excel-based cash flow engine.

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 SME 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 increased the expected default rate on receivables granted to obligors operating in certain industries based on their perceived exposure to the adverse disruptions of the coronavirus. As per DBRS Morningstar’s assessment, 9.5% of the outstanding portfolio balance represented industries classified in the high-risk economic sectors. This led the underlying one-year PDs to be multiplied by 1.5 times. DBRS Morningstar also conducted an additional sensitivity analysis to determine that the transaction benefits from sufficient liquidity support to withstand high levels of payment holidays in the portfolio. As of 31 January 2022, EUR 71,402.9 was reported as currently benefitting from coronavirus-related moratoriums.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 24 March 2022. 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/394150/baseline-macroeconomic-scenarios-for-rated-sovereigns-march-2022-update and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

On 10 February 2022, DBRS Morningstar updated its 18 May 2020 commentary outlining the impact of the Coronavirus Disease (COVID-19) crisis on the performance of DBRS Morningstar-rated structured credit transactions in Europe almost two years on. For more details, please see: https://www.dbrsmorningstar.com/research/392167/two-years-into-covid-19-risks-to-european-structured-credit-transactions and https://www.dbrsmorningstar.com/research/361098/european-structured-credit-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.

On 22 March 2023, DBRS Morningstar amended the above press release to remove the trend from this rating action as it does not apply.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Rating CLOs Backed by Loans to European SMEs” (28 June 2021).

Other methodologies referenced in this transaction 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 transaction in accordance with the surveillance section of the principal methodology.

DBRS Morningstar received notification of an amendment to the account bank interest rate effective 31 March 2022. A review of any other transaction 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 reports and information provided by the Management Company, Intermoney Titulización S.G.F.T., S.A., and loan-by-loan data from 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 action on this transaction took place on 8 April 2021, when DBRS Morningstar finalised its provisional ratings on the Series A and Series B Notes at AA (low) (sf) and CCC (low) (sf), respectively.

The lead analyst responsibilities for this transaction 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 rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the rating (the Base Case):

-- PD Rates Used: Base-case PD of 2.8%, a 10% increase of the base case and a 20% increase of the base-case PD.
-- Recovery Rates Used: Base-case recovery rate of 27.9% at the AA (high) (sf) rating level and 38.4% at the B (low) (sf) rating level, for the Series A Notes and Series B Notes, respectively, and a 10% and 20% decrease in the base-case recovery rates. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery-rate levels.

DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20%, ceteris paribus, would lead to a confirmation of the Series A Notes at AA (high) (sf) and a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would also lead to a confirmation of the Series A Notes at AA (high) (sf). A scenario combining both a hypothetical increase in the PD by 10% and a hypothetical decrease in the recovery rate by 10%, would also lead to a confirmation of the Series A Notes at AA (high) (sf).

For the Series B Notes, DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20%, ceteris paribus, would lead to a confirmation of the Series B Notes at B (low) (sf), and a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would also lead to a confirmation of the Series B Notes at B (low) (sf). A scenario combining both an increase in the base case PD by 10% and a decrease in the base case recovery rate by 10%, ceteris paribus, would also lead to a confirmation of the Series B Notes at B (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: Helvia Meana, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 30 March 2021

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Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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.

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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