The rating actions are as follows:

Serie A (ISIN ES0305274005), EUR 2,278.5m: final rating AA+_SF
Serie B (ISIN ES0305274013), EUR 171.5m: final rating BB+_SF

The securitised portfolio was originated in the ordinary course of business by Caixabank, S.A (Caixabank). Scope has reviewed the closing portfolio as of the effective transfer date, 20 July 2017. The closing portfolio contains two product types: unsecured consumer loans with an average remaining term of 4.1 years (81.4% of the portfolio’s outstanding balance), and secured consumer loans backed by residential mortgages with an average remaining term of 16.5 years (18.6%).

Rating rationale

The ratings reflect the legal and financial structure, which comprises two tranches of floating-rate, quarterly paying notes, and the quality of the underlying collateral in the context of the Spanish macroeconomic environment. The ratings also address the exposure to Caixabank, which performs all counterparty roles in the transaction as the originator and servicer, issuer account bank holder, and paying agent. The ratings factor in the notes’ protection against portfolio losses, provided by their respective credit enhancement and excess interest from the assets of 7.6%. The class A notes benefit from 11% credit enhancement as of closing, provided by the full subordination of class B interest and principal and by a 4% amortising reserve fund. The class B notes benefit from 4% credit enhancement as of closing, provided by the subordination of the reserve fund.

Key rating drivers

Moderate defaults (positive). Scope expects a moderate lifetime default rate of 10.3% and 5.0% for the secured and unsecured portfolio segments respectively. These expectations take into account Caixabank’s strong historical performance when benchmarked against the average of Spanish originators.

Repeated transaction (positive). The transaction benefits from tested assets’ performance and the experience of the originator. This is the third securitisation of the Consumo series issued by Caixabank and Scope has calibrated its performance assumptions, taking into account the performance of past securitisations, in particular of Foncaixa Consumo 1, FTA.

Improving Spanish economy (positive). The Spanish macroeconomic environment is currently credit-supportive as a result of decreasing unemployment and rising GDP (see Scope’s rating report on the Kingdom of Spain, dated 30 June 2017). Scope’s assumptions reflect these positive trends.

Significant excess spread (positive). Very high excess spread that cover periodic losses from the assets provides strong credit protection for the notes. The spread between the weighted average rate from assets and weighted average cost of liabilities is 7.6% as of closing.

Sequential amortisation (positive). The class A noteholders benefit from the full subordination of class B interest and principal; the transaction features a strictly sequential, combined waterfall, with no deferral triggers.

Interest rate risks (negative). A significant portion of the portfolio (73.8%) will pay a fixed-rate coupon, while the notes will pay a floating-rate coupon referenced to three-month Euribor. This risk is mitigated by the short expected weighted average life of 1.8 years for the class A notes. The class B rating captures the higher exposure of this series to interest rate risk due to the series’ longer expected weighted average life of 7.8 years.

Long default definition (negative). Excess spread will not be available to provision for defaults until they are written off according to the transaction’s 18-month default definition. If excess spread is not applied to provision for defaults on any given period, it will flow to the originator since no excess spread is trapped.

Counterparty concentration (negative). Counterparty financial exposure to Caixabank as account bank and paying agent is mitigated by the bank’s high credit quality and by BBB- replacement triggers. Caixabank performs all counterparty roles in this transaction.

Rating-change drivers

Positive. Better-than-expected performance of the assets, as well as faster-than-expected portfolio amortisation if credit enhancement builds up before credit losses crystallise, may positively impact the ratings.

Negative. Worse-than-expected performance of the assets as well as a deterioration of the Spanish macroeconomic environment could negatively impact the ratings.

Quantitative analysis and key assumptions

Scope applied its large homogenous portfolio approximation approach (LHPA) when modelling the highly granular collateral pool. Key assumptions from this exercise were then taken and applied to the cash flow analysis of the transaction over its amortisation period. Scope calibrated point-in-time portfolio assumptions based on 2008-2016 vintage data, which reflects the performance of Caixabank’s retail loan book in Spain and captures a period of significant economic stress. Scope also considered a long-term economic cycle adjustment to limit procyclicality for the class A rating.

Scope has assumed a point-in-time default rate of 10.3% for secured exposures and 5.0% for unsecured, with coefficient of variations of 40.6% and 50% respectively. Scope has also assumed long-term default rates of 7.3% for secured and 3.4% for unsecured, with a coefficients of variation of 60% and 75% respectively. The latter coefficients of variation capture the higher default volatility of Caixabank’s loan book compared to the Spanish market, based on the Bank of Spain’s consumer loan data.

Scope has modelled rating-conditional recovery rates of 17.2% for class A and 24.2% for class B. Recovery rates were also modelled by portfolio segment: for unsecured, 12.0% for class A and 16.2% for class B; for secured, 40.7% and 59.7% respectively. Recovery rate assumptions for the unsecured exposures were derived from recovery vintage data during 2008-2016; while, for secured, these were based on Scope’s market-value-decline assumptions of the dedicated security.

The model-implied expected loss and weighted average life of the class A is 1.7% and 1.8 years respectively, which results in a AA+_SF model-implied rating. For class B, these are 9.6% and 8.6 years respectively, which results in a BBB_SF model-implied rating. These model outputs capture a 15% constant prepayment rate assumption. Scope has also tested the model’s resilience against a 0% prepayment rate assumption. The final class B rating of BB+_SF reflects a qualitative adjustment, which addresses the series’ higher exposure to interest rate risk and back-loaded defaults.

Rating sensitivity

Scope tested the resilience of the rating against deviations of the main input parameters: the portfolio mean default rate and recovery rates. This analysis has the sole purpose of illustrating the sensitivity of the rating to input assumptions and is not indicative of expected or likely scenarios.

The following shows how the model-implied rating for each rated tranche changes when the portfolio’s expected default rate is increased by 50% and recovery rates are reduced by 50%, respectively:

• Serie A: sensitivity to default rate assumptions, four notches; sensitivity to recovery rates, one notch;
• Serie B: sensitivity to default rate assumptions, three notches; sensitivity to recovery rates, three notches.

Methodology

The methodologies applicable for this preliminary rating is the General Structured Finance Methodology, dated August 2016. Scope also applied the principles contained in the Rating Methodology for Counterparty Risk in Structured Finance Transactions, dated August 2016. All documents are available on www.scoperatings.com.

Scope analysts are available to discuss all the details of the rating analysis and the risks to which this transaction is exposed.

Regulatory and legal disclosures

Important information
Information pursuant to Regulation (EC) No 1060/2009 on credit rating agencies, as amended by Regulations (EU) No. 513/2011 and (EU) No. 462/2013

Responsibility
The party responsible for the dissemination of the financial analysis is Scope Ratings AG, Berlin, District Court for Berlin (Charlottenburg) HRB 161306 B, Executive Board: Torsten Hinrichs (CEO), Dr Stefan Bund.
The rating analysis has been prepared by Antonio Casado, Lead Analyst. Karlo Fuchs, Committee Chair, is the analyst responsible for approving the rating.

Rating history
The preliminary ratings were first assigned on 17 July 2017.

Information on interests and conflicts of interest
The rating was prepared independently by Scope Ratings but for a fee based on a mandate of the issuer of the investment, represented by the management company. The issuer has participated in the rating process.
As of the time of the analysis, neither Scope Ratings AG nor companies affiliated with it hold any interests in the rated entity or in companies directly or indirectly affiliated to it. Likewise, neither the rated entity nor companies directly or indirectly affiliated with it hold any interests in Scope Ratings AG nor any companies affiliated to it. Neither the rating agency, the rating analysts who participated in this rating, nor any other persons who participated in the provision of the rating and/or its approval hold, either directly or indirectly, any shares in the rated entity or in third parties affiliated to it. Notwithstanding this, it is permitted for the above-mentioned persons to hold interests through shares in diversified undertakings for collective investment, including managed funds such as pension funds or life insurance companies, pursuant to EU Rating Regulation (EC) No 1060/2009. Neither Scope Ratings nor companies affiliated with it are involved in the brokering or distribution of capital investment products. In principle, there is a possibility that family relationships may exist between the personnel of Scope Ratings and that of the rated entity. However, no persons for whom a conflict of interests could exist due to family relationships or other close relationships will participate in the preparation or approval of a rating.

Key sources of information for the rating
Transaction-related contracts; management due diligence presentation provided by the originator; historical vintage data indicative of the originator’s loan book; and loan-by-loan portfolio information.
Scope Ratings considers the quality of the available information on the evaluated entity to be satisfactory. Scope ensured as far as possible that the sources are reliable before drawing upon them, but did not verify each item of information specified in the sources independently.

Examination of the rating by the rated entity prior to publication
Prior to publication, the rated entity was given the opportunity to examine the rating and the rating drivers, including the principal grounds on which the credit rating or rating outlook is based. The rated entity was subsequently provided with at least one full working day, to point out any factual errors, or to appeal the rating decision and deliver additional material information. Following that examination, the rating was not modified.

Methodology
The methodology applicable for the ratings is ‘General Structured Finance Rating Methodology’, dated August 2016, and the ‘Rating Methodology for Counterparty Risk in Structured Finance Transactions’, dated August 2016. All files are available on www.scoperatings.com. The historical default rates of Scope Ratings can be viewed on the central platform (CEREP) of the European Securities and Markets Authority (ESMA):http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s default rating, definitions of rating notations and further information on the analysis components of a rating can be found in the documents on methodologies on the rating agency’s website.

Conditions of use / exclusion of liability
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