DBRS Morningstar Upgrades and Confirms its Ratings on Clavel Residential DAC

DBRS Ratings GmbH (DBRS Morningstar) upgraded and confirmed its ratings on the Notes issued by Clavel Residential DAC (the Issuer), as follows:

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

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

-- Portfolio performance, in terms of delinquencies, defaults, and losses as of the February 2023 payment date.
-- Portfolio default rate (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables, and
-- Current available credit enhancement to the rated notes to cover the expected losses at their respective rating levels.

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 a rating to the Class Z Notes.

The transaction represents the issuance of notes backed by a portfolio of re-performing Spanish mortgage loan 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. In September 2016, Catalunya Banc was absorbed and merged with BBVA.

PORTFOLIO PERFORMANCE
As of the February 2022 payment date, loans up to one month in arrears represented 16.7% of the outstanding portfolio balance, down from 17.8% at closing one year ago. Loans one to three months in arrears represented 5.0% of the outstanding portfolio balance, down from 8.8% in the same period, and the 90+ delinquency ratio increased to 14.2%, up from 7.2% in the same period. The cumulative default ratio was 2.2% and the cumulative loss ratio was 0.05%.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions at the B (sf) rating level to 23.3% and 18.3% respectively.

CREDIT ENHANCEMENT
The credit enhancement is provided in the form of overcollateralisation. As of the February 2023 payment date the credit enhancement for the Rated Notes slightly increased since closing, as follows: Class A Notes 36.3%, Class B Notes 28.0%, Class C Notes 22.7%, Class D Notes 17.4%, Class E Notes 14.4%, Class F Notes 12.8%.

A liquidity reserve fund was funded at closing with the proceeds from the Rated Notes. The reserve fund provides 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 equals to 3.0% of the outstanding balance of the Class A Notes and is 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.

Elavon Financial Services DAC (Elavon) acts as the Issuer’s account bank. Based on DBRS Morningstar’s private rating of Elavon, the downgrade provisions outlined in the transaction documents, and structural mitigants inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the AAA (sf) rating assigned to the Class A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

BNP Paribas SA acts as an interest rate cap counterparty to the Issuer. BNP Paribas SA’s DBRS Morningstar Long Term Critical Obligations Rating of AA (high) is above the first rating threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant impact 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 Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (7 February 2023).
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 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/401817/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 and loan-level data provided by the U.S. Bank Global Corporate Trust.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial rating, 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.

This is the first rating action since the Initial Rating Date.

The lead analyst responsibilities for this transaction have been transferred to Shalva Beshia.

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

Sensitivity Analysis: 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):

-- 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 at the B (sf) rating level are 23.3% and 18.3%, 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 fall to AA (low) (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to fall to 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 fall to A (low) (sf).

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

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

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

Class D 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 (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (low) (sf)

Class E 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 (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of B (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of B (sf)

Class F Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BB (low) (sf)
-- 50% increase in LGD, expected rating of BB (low) (sf)
-- 25% increase in PD, expected rating of BB (low) (sf)
-- 50% increase in PD, expected rating of B (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of B (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of B (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of B (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of 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: Shalva Beshia, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 8 March 2022

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: https://www.dbrsmorningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (7 February 2023), https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-methodology.
-- Legal Criteria for European Structured Finance Transactions (22 July 2022), https://www.dbrsmorningstar.com/research/400166/legal-criteria-for-european-structured-finance-transactions.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (17 May 2022), https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.
-- European RMBS Insight Methodology (28 March 2022) and European RMBS Insight Model v 5.7.1.0, https://www.dbrsmorningstar.com/research/394309/european-rmbs-insight-methodology
-- European RMBS Insight: Spanish Addendum (1 March 2023), https://www.dbrsmorningstar.com/research/410420/european-rmbs-insight-spanish-addendum
-- Interest Rate Stresses for European Structured Finance Transactions (22 September 2022), https://www.dbrsmorningstar.com/research/402943/interest-rate-stresses-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2022), https://www.dbrsmorningstar.com/research/402774/operational-risk-assessment-for-european-structured-finance-servicers.
-- Derivative Criteria for European Structured Finance Transactions (20 September 2021), https://www.dbrsmorningstar.com/research/384624/derivative-criteria-for-european-structured-finance-transactions.

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.