DBRS Morningstar Assigns Provisional Credit Ratings to CaixaBank PYMES 13, FT

DBRS Ratings GmbH (DBRS Morningstar) assigned provisional credit ratings to the following series of notes (the Notes) to be issued by CaixaBank PYMES 13, FT (the Issuer):

-- Series A Notes at AA (sf)
-- Series B Notes at BB (sf)

The provisional credit rating on the Series A Notes addresses the timely payment of scheduled interest and the ultimate repayment of principal by the legal maturity date. The provisional credit rating on the Series B Notes addresses the ultimate payment of scheduled interest and the ultimate repayment of principal by the legal maturity date.

The transaction is a cash flow securitisation collateralised by a portfolio of unsecured loans originated by CaixaBank, S.A. (CaixaBank or the Originator; rated “A” with a Stable trend by DBRS Morningstar) to small and medium-size enterprises (SME) and self-employed individuals based in Spain. As of 25 September 2023, the transaction’s provisional portfolio included 41,979 loans to 37,713 obligor groups, totalling EUR 3.5 billion. At closing, the Originator will select the final portfolio of EUR 3.0 billion from the provisional pool.

Interest and principal payments on the Notes will be made quarterly on the 18th of January, April, July and October, with the first payment date on 18 April 2024. The Notes will pay a fixed interest rate equal to 2.5% and 2.75% for the Series A Notes and Series B Notes, respectively.

The provisional pool is well diversified across industries and in terms of borrowers. There is some concentration of borrowers in Catalonia (24.6% of the portfolio balance), which is to be expected given that Catalonia is the Originator’s home region. The top one, ten and 20 obligor groups represent 0.7%, 3.6% and 5.4% of the portfolio balance, respectively. The top three industry sectors according to DBRS Morningstar’s industry definition are Consumer Packaged Goods, Business Services, and Real Estate, representing 22.5%, 9.1%, and 6.8% of the portfolio outstanding balance, respectively.

The Series A Notes benefit from 18.0% credit enhancement through subordination of the Series B Notes and the presence of a reserve fund. The Series B Notes benefit from 5.0% credit enhancement provided by the reserve fund. The reserve fund will be funded 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 cash reserve will amortise subject to the target level being equal to 5.0% of the outstanding balance of the Series A and Series B notes. The Series B Notes interest and principal payments are subordinated to Series A Notes payments.
The credit ratings are based on DBRS Morningstar’s “Rating CLOs Backed by Loans to European SMEs” methodology and the following analytical considerations:
-- The probability of default (PD) for the portfolio was determined using the historical performance information supplied. DBRS Morningstar compared the internal credit rating distribution of the portfolio with the internal credit rating distribution of the loan book and concluded that the portfolio was of better quality than the overall loan book. This positive selection was a factor considered when determining the PD of the pool. DBRS Morningstar assumed an annualised PD of 1.6% for unsecured loans to SME and self-employed individuals, and 2.5% for pre-approved loans.
-- The assumed weighted-average life (WAL) of the portfolio is 3.27 years which is based on the amortisation schedule of the provisional pool.
-- The PD and WAL were used in the DBRS Morningstar SME Diversity Model to generate the hurdle rates for the respective credit ratings.
-- The recovery rate was determined following the “Global Methodology for Rating CLOs and Corporate CDOs” and applying a stress due to the repurchase option for doubtful loans at a price that can be significantly below their outstanding par value . For the Series A Notes, DBRS Morningstar applied a 20.4% recovery assumption. For the Series B Notes, DBRS Morningstar assumed a 26.0% recovery rate.
-- The break-even rates for the different interest rate stresses and default timings scenarios were determined using a DBRS Morningstar proprietary cash flow tool.

The transaction currently benefits from significant amount of excess spread due to the fact that 55% of the portfolio pays on a floating rate basis mainly linked to Euribor indices while the notes pay on a fixed rate. However, the transaction does not benefit from any interest rate hedging agreements and is therefore exposed to interest rate risk. The interest generated by the pool can decrease significantly in scenarios where interest rates fall. In addition, the servicer can make interest rate type changes to loans in the portfolio (if agreed with each borrower) which may lead to further interest rate risk.

DBRS Morningstar’s credit ratings on the Series A and Series B Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. For the Notes the associated financial obligations are the related interest payments amounts and the related principal payments.

DBRS Morningstar’s credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

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/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is: “Rating CLOs Backed by Loans to European SMEs” (22 October 2023), https://www.dbrsmorningstar.com/research/422274/rating-clos-backed-by-loans-to-european-smes.

Other methodologies referenced in this transaction are listed at the end of this press release.

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit 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/421590.

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.

The sources of data and information used for these credit ratings include:
-- Quarterly static default data from Q1 2013 to Q2 2023 for CaixaBank’s total unsecured portfolio, split between standard unsecured loans and pre-approved loans.
-- Quarterly static recovery from Q1 2013 to Q2 2023 for CaixaBank’s total unsecured portfolio, split between standard unsecured loans and pre-approved loans.
-- Loan by loan data for the provisional portfolio selected as of 25 September 2023.
-- Contractual amortisation schedule of the selected portfolio.

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

DBRS Morningstar was supplied with one or more third-party assessments. However, this did not impact the credit rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the credit rating process.

These credit ratings concern expected-to-be issued new financial instruments. These are the first DBRS Morningstar credit ratings on these financial instruments.

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

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit rating (the Base Case):

-- PD Used: Base case PD of 1.6% for unsecured loans to SME and self-employed individuals and 2.5% for pre-approved loans, a 10.0% and 20.0% increase on the base case PD.
-- Recovery Rates Used: Base case recovery rate of 20.4% at the AA (sf) and 26.0% at the BB (sf) stress levels, a 10.0% and 20.0% decrease in the base case recovery rates, respectively.

DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20% would not have impact on the Series A Notes credit rating and it would lead to a downgrade of Series B Notes to BB (low) (sf). A hypothetical decrease of the base case recovery rate by 20%, ceteris paribus, would not have an impact on the Series A Notes credit rating or the Series B Notes credit rating. A scenario combining both an increase in the base case PD by 10% and a decrease in the base case recovery rate by 10% would not have an impact on the Series A Notes credit rating or the Series B Notes credit rating.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: María López, Senior Vice President, Credit Ratings
Rating Committee Chair: Christian Aufsatz, Managing Director, Head of European Structured Finance
Initial Rating Date: 7 November 2023

DBRS Ratings GmbH, Sucursal en España
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Tel. +34 (91) 903 6500

DBRS Ratings GmbH
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60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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

-- Rating CLOs Backed by Loans to European SMEs (22 October 2023) and SME Diversity Model v2.6.1.4, https://www.dbrsmorningstar.com/research/422274/rating-clos-backed-by-loans-to-european-smes.

-- Global Methodology for Rating CLOs and Corporate CDOs (22 October 2023), https://www.dbrsmorningstar.com/research/422269/global-methodology-for-rating-clos-and-corporate-cdos.

-- Legal Criteria for European Structured Finance Transactions (30 June 2023), https://www.dbrsmorningstar.com/research/416730/legal-criteria-for-european-structured-finance-transactions.

-- Rating European Structured Finance Transactions Methodology (6 October 2023), https://www.dbrsmorningstar.com/research/421599/rating-european-structured-finance-transactions-methodology.

-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023), https://www.dbrsmorningstar.com/research/420572/operational-risk-assessment-for-european-structured-finance-servicers.

-- Operational Risk Assessment for European Structured Finance Originators (15 September 2023), https://www.dbrsmorningstar.com/research/420573/operational-risk-assessment-for-european-structured-finance-originators.

-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023), https://www.dbrsmorningstar.com/research/420602/interest-rate-stresses-for-european-structured-finance-transactions.

DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (4 July 2023), https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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.