Press Release

DBRS Morningstar Upgrades and Confirms Ratings of Notes Issued by IM BCC Capital 1, FT

Structured Credit

June 07, 2022

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the notes issued by IM BCC Capital 1, FT:

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

The rating of the Class A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal maturity date in April 2037. The ratings of the Class B Notes and Class C Notes address the ultimate payment of interest and principal on or before the legal maturity date.

The rating actions 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 April 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 static cash flow securitisation collateralised by a portfolio of term loans originated and serviced by Cajamar Caja Rural, S.C.C. (Cajamar), granted to SMEs and self-employed individuals based in Spain. It closed in December 2018.

PORTFOLIO PERFORMANCE
The transaction’s performance has been stable since closing. As of 31 March 2022, the overall portfolio consisted of an aggregate principal balance of EUR 311.7 million. The current cumulative default ratio was at 0.64%, up from 0.50% at the time of the last annual review. The 30-60 day and 60-90 day delinquency ratios stood at 0.13% and 0.09%, respectively, stable from 0.15% and 0.14% last year, respectively.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar maintained the one-year base case PD at 2.3% (including coronavirus-related adjustments) and updated its lifetime default and recovery assumptions on the outstanding portfolio to 39.8% and 38.5%, respectively, at the AA (high) (sf) rating level, to 21.0% and 45.6%, respectively, at the BBB (low) (sf) rating level, and to 14.0% and 50.3%, respectively, at the BB (low) (sf) rating level.

CREDIT ENHANCEMENT
The Class A to Class E Notes amortise pro rata, unless certain sequential amortisation events have occurred to date. As a result of the pro rata amortisation, credit enhancement remains stable at 39.8%, 16.1%, and 9.3% for the Class A, Class B, and Class C Notes, respectively. The credit enhancement for the rated notes is provided by the subordination of the junior notes and a reserve fund.

The reserve fund is currently funded at EUR 9.5 million, after reaching its floor on the April 2021 payment date, and it is available to cover shortfalls in senior expenses and interest and principal of the Class A to Class D Notes.

The structure also benefits from a commingling reserve account funded at closing to mitigate any potential disruptions of the payment of senior expenses and interest on the Class A Notes. This is currently funded at EUR 0.45 million.

Banco Santander SA (Santander) acts as the account bank for the transaction. Based on the DBRS Morningstar reference rating of Santander at A (high), 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 ratings assigned to the Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

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, 13.0% 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 transactions benefit from sufficient liquidity support to withstand high levels of payment holidays in the portfolio. As of 30th April 2022, the Issuer reported EUR 31,003.8 of loans benefiting 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.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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

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” (2 May 2022).

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.

A review of the 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 transaction reports and information provided by the Management Company, InterMoney Titulización SGFT, S.A.; 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 action on this transaction took place on 7 June 2021 when DBRS Morningstar confirmed the ratings of the Class A, Class B, and Class C Notes at AA (sf), BBB (low) (sf), and BB (low) (sf), respectively. DBRS Morningstar also removed the rating of the Class A Notes from Under Review with Negative Implications (UR-Neg.) status, where it was placed on 14 April 2021 following an asset model error.

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):

-- PD Rates Used: Base case PD of 2.3%, a 10% and 20% increase on the base case PD.
-- Recovery Rates Used: Base-case recovery rate of 38.5% at the AA (high) (sf), 45.6% at the BBB (low) (sf), and 50.3% at the BB (low) (sf) stress levels, a 10% and 20% decrease in the base-case recovery rate.

In relation to the Class A Notes, DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (low) (sf). A hypothetical decrease of the recovery rate by 20%, ceteris paribus, would also lead to a downgrade of the Class A Notes to A (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 downgrade of the Class A Notes to AA (low) (sf).

With regard to the Class B Notes, DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20%, ceteris paribus, would lead to a downgrade of the Class B Notes to BB (high) (sf). A hypothetical decrease of the recovery rate by 20%, ceteris paribus, would also lead to a downgrade of the Class B Notes to BB (low) (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 downgrade of the Class B Notes to BB (high) (sf).

Finally, for the Class C Notes, DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20%, ceteris paribus, would lead to a downgrade of the Class C Notes to B (high) (sf). A hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a downgrade of the Class C Notes to B (sf). A scenario combining both a hypothetical increase in the PD by 10% and a hypothetical decrease in the recovery rate by 10% would lead to a downgrade of the Class C Notes to B (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: https://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, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 10 December 2018

DBRS Ratings GmbH
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The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

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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