Press Release

DBRS Morningstar Finalises Provisional Credit Ratings on BBVA Leasing 3, F.T.

Consumer/Commercial Leases

November 29, 2023

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional credit ratings on the following series of notes issued by BBVA Leasing 3, F.T. (the Issuer):

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

The credit rating on the Series A Notes addresses the timely payment of scheduled interest and the ultimate repayment of principal by the legal final maturity date in November 2043. The credit rating on the Series B Notes addresses the ultimate payment of interest and the ultimate repayment of principal by the legal final maturity date.

CREDIT RATING RATIONALE
The transaction represents the issuance of Series A Notes and Series B Notes (together, the Notes) backed by a portfolio of approximately EUR 2.4 billion of commercial leases granted mostly to corporates and small and medium-size enterprises (SMEs) originated by Banco Bilbao Vizcaya Argentaria S.A. (BBVA) in Spain. The transaction will be managed by Europea de Titulización, S.A., Sociedad Gestora de Fondos de Titulización (the Management Company). BBVA is the servicer of the portfolio.

DBRS Morningstar’s credit ratings are based on the following analytical considerations:
-- The transaction’s structure, including the form and sufficiency of available credit enhancement to withstand stressed cash flow assumptions and repay the Issuer’s financial obligations according to the terms under which the Notes are issued.
-- The credit quality of BBVA’s portfolio, the well diversification of the collateral, its historical performance, and DBRS Morningstar projected behaviour under various stress scenarios.
-- BBVA's capabilities with respect to originations, underwriting, servicing, and its position in the market and financial strength.
-- The operational risk review of BBVA, which DBRS Morningstar deems to be an acceptable servicer.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.
-- The consistency of the transaction’s hedging structure with DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology.
-- The sovereign rating on the Kingdom of Spain, currently rated “A” with a Stable trend by DBRS Morningstar.

The transaction benefits from a EUR 120 million reserve fund that was funded at through the proceeds of a subordinated loan and will be able to cover the Notes interest and Series A Notes principal shortfalls. Once the Series A Notes have been redeemed in full, the reserve fund will also cover potential principal shortfalls of the Series B Notes.

As of 27 October 2023, the provisional portfolio had an aggregate principal balance of EUR 2.6 billion (from which the EUR 2.4 billion initial portfolio was selected) and consisted of 34,304 loans extended to 19,355 borrower groups.

The Notes will be paying a fixed rate like the majority of the portfolio (67.6% by outstanding balance) whereas 32.4% the portfolio by outstanding balance are floating-rate leases indexed to Euribor.

The Notes will be repaid on a fully sequential basis starting from the first payment date in February 2024. The transactions’ available funds are distributed through a combined interest and principal waterfall.

TRANSACTION COUNTERPARTIES
BBVA acts as the account bank for the transaction. Based on the DBRS Morningstar credit rating of BBVA at A (high) (Long-Term Critical Obligations Rating at AA (low)), 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 BBVA to be consistent with the credit ratings assigned to the Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

BBVA is the interest rate swap provider for the transaction. DBRS Morningstar has a Long-Term Issuer Rating of A (high) on BBVA, which meets its criteria to act in such capacity. The transaction documents contain downgrade provisions consistent with DBRS Morningstar’s criteria.

The transaction is exposed to BBVA as it covers the role of Issuer account bank, servicer, and swap provider. Due to this concentration of roles, DBRS Morningstar carried out further analysis to assess the exposure to the bank.

DBRS Morningstar’s credit ratings on the rated Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for each of the rated Notes are the related Interest Amounts and the Initial Principal Amount Outstanding.

DBRS Morningstar’s credit ratings do not address nonpayment 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.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is: Rating European Consumer and Commercial Asset-Backed Securitisations (22 October 2023), https://www.dbrsmorningstar.com/research/422276/rating-european-consumer-and-commercial-asset-backed-securitisations.

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.

An asset and a cash flow analysis were both conducted.

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/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.

The sources of data and information used for these credit ratings include data and information sourced by the originator and provided through the originator (BBVA) and the Management Company.

DBRS Morningstar received quarterly static default and recovery data from Q1 2014 to Q2 2023 and monthly dynamic delinquency data from May 2015 to July 2023. DBRS Morningstar also received a set of stratification tables for the loan pool as of 27 October 2023 and its related contractual amortisation profile.

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

DBRS Morningstar was supplied with 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 newly issued financial instruments. These are the first DBRS Morningstar credit ratings on these financial instrument.

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

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 ratings, DBRS Morningstar considered the following stress scenarios, as compared with the parameters used to determine the credit ratings:

-- Probability of default (PD) used: Expected PD of 6.5%
-- Loss given default (LGD) used: Expected LGD of 73.5%

Scenario 1: A 25% increase in the expected PD.
Scenario 2: A 50% increase in the expected PD.
Scenario 3: A 25% increase in the expected LGD.
Scenario 4: A 25% increase in the expected PD and a 25% increase in the expected LGD.
Scenario 5: A 50% increase in the expected PD and a 25% increase in the expected LGD.
Scenario 6: A 50% increase in the expected LGD.
Scenario 7: A 25% increase in the expected PD and a 50% increase in the expected LGD.
Scenario 8: A 50% increase in the expected PD and a 50% increase in the expected LGD.

DBRS Morningstar concludes that the expected credit ratings under the eight hypothetic scenarios are
-- Series A Notes: A (high) (sf), BBB (high) (sf), A (high) (sf), BBB (high) (sf), BBB (low) (sf), A (high) (sf), BBB (high) (sf), BB (high) (sf).
-- Series B Notes: CCC (low) (sf), C (sf), CCC (low) (sf), C (sf), C (sf), CCC (low) (sf), C (sf), C (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://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: Maria Lopez, Senior Vice President
Credit Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Credit Rating Date: 23 November 2023

DBRS Ratings GmbH, Sucursal en España
Paseo de la Castellana 81
Plantas 26 & 27 28046 Madrid, Spain
Tel. +34 (91) 903 6500

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 credit 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.

Download This Press Release