Rating action

Serie A (ISIN ES0305380000), EUR 2,793.0m: final rating AAA_SF

Serie B (ISIN ES0305380018), EUR 532.0m: final rating BB_SF

To access the rating report, click here.¹

¹ The link was added on 27 November 2018.

Transaction overview

The securitised portfolio was originated in the ordinary course of business by Caixabank, S.A. It contains two main product types: unsecured receivables with an average remaining term of 5.0 years (75.6% of the portfolio’s outstanding balance), and mortgage receivables with an average remaining term of 11 years (24.4%). The unsecured receivables typically have a personal guarantee (i.e. the joint and several guarantee of the business owners) or other types of real guarantee that differ to a mortgage.

The transaction features two strictly sequential tranches of floating-rate, quarterly paying notes with a combined priority of payments and a cash reserve available for default provisioning. The class B notes are totally subordinated to the class A notes.

Caixabank performs all counterparty roles in the transaction as the originator, servicer, issuer account bank holder, and paying agent.

Rating rationale

The ratings reflect the notes’ protection against portfolio losses, provided by the quality of the underlying collateral in the context of the Spanish macroeconomic environment and by the transactions legal and financial structure. At closing, the class A notes benefits from 20.75% credit enhancement, provided by the full subordination of class B and by an amortising reserve fund. The class B notes will benefit from the subordination of the reserve fund once class A has been redeemed in full. The size of the reserve fund is equal to 4.75% of the notes balance but will amortize to 4.00% of the outstanding notes balance after a lock-up period of one year. All notes benefit from periodic gross excess spread, which amounts to 1.29% at closing.

The ratings are not constrained by the exposure to Caixabank. Counterparty exposure is mitigated by the bank’s high credit quality, by investment grade replacement triggers, and by the moderate expected life of the class A notes (2.8 years). Scope also considered the bank’s systemic importance and resolvability in its assessment of counterparty risk.

Key rating drivers

Experienced originator (positive). The transaction benefits from the assets’ proven performance and the experience of the originator. This is the 10th securitisation of the Pymes series issued by Caixabank and Scope calibrated its performance assumptions, taking into account that 27% of the portfolio is composed of seasoned assets stemming from previous Pymes series 6 and 7 securitisations. The rest of the portfolio corresponds to new origination, which follows prudent underwriting standards consistent with those of previous securitisations.

Positive asset selection (positive). The assets in this portfolio come from previous securitisations, which have performed well. Scope expects a moderate lifetime mean default rate of 6.0% for the securitised portfolio, which is relatively low compared with previous transactions of the same series. These expectations take into account both the internal probabilities of default reported by Caixabank, which were derived with IRB-advanced credit risk models, and performance vintages for the 2011-2017 period.

Low loan-to-value ratio (positive). Expected recoveries on defaulted mortgage receivables are high (80%), driven by the low average loan-to-value ratio (47%) of this segment of the portfolio.

Long default definition (negative). Excess spread will not be available to provision for defaults until they are written off according to the transaction’s 12-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.

Low portfolio yield (negative). Available excess spread to provision for defaults is limited. The weighted average nominal rate on the assets (2.3%) is relatively low, considering the unsecured nature of most underlying receivables. In addition, Scope has factored in potential spread compression of 25 bps resulting from the prepayment or default of higher yielding assets.

Unhedged interest rate risks (negative). A significant portion of the portfolio (34.4%) will pay a fixed-rate coupon, while the notes will pay a floating-rate coupon referenced to three-month Euribor. The moderate expected life of class A (2.8 years) mitigates interest rate risk, while Class B noteholders are more exposed due to the series’ longer expected life (6.7 years).

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 has performed a cash flow analysis, considering the portfolio's characteristics and the transaction's main structural features. Scope has applied its large homogenous portfolio approximation approach when analysing the collateral pool and projecting cash flows over the amortisation period. The cash flow analysis considers the probability distribution of each portfolio’s default rate, following an inverse Gaussian distribution, to calculate the expected loss of each rated tranche. The analysis also provides the expected weighted average life of each tranche.

Scope calibrated point-in-time portfolio assumptions based on 2011-2017 vintage data, which reflects the performance of Caixabank’s SME 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 assumed a point-in-time mean default rate of 10.5% for secured exposures and of 4.5% for unsecured exposures, and with coefficients of variation of 50% and 60% respectively. Scope also considered long-term economic cycle-adjusted probability of default distributions to reduce the procyclicality for the class A rating. For these long-term distributions, Scope assumed a mean default rate of 7.9% for secured exposures and of 3.4% for unsecured exposures, with coefficients of variation of 65% and 75% respectively.

The base case recovery rates used in the analysis are 80% and 35% for the secured and unsecured portfolios, respectively, which results in a weighted average base case recovery rate of 45.9% for the total portfolio. This level is subject to rating-conditional haircuts: Scope assumed a weighted average recovery rate of 27.5% and 42.3%, for its analysis of the class A and class B notes, respectively. Recovery rate assumptions for the unsecured exposures were derived based on recovery vintage data for 2011-2017 and, with regard to secured exposures, Scope’s market-value-decline assumptions for the dedicated security and recovery vintage data for 2011-2017.

Scope has analysed Caixabank and produced a private Issuer Credit-Strength Rating on the bank in order to assess counterparty risk in the transaction.

Stress testing
Stress testing was performed by applying rating-adjusted recovery rate assumptions.

Cash flow analysis
Default and recovery rate assumptions over the portfolio’s amortisation period were applied to the cash flow analysis, which takes into account the transaction’s main structural features, such as the notes’ priorities of payment, the notes’ size and coupons. The outcome of the analysis is an expected loss and an expected weighted average life for the notes.

Rating sensitivity
Scope tested the resilience of the rating against deviations of the main input parameters: the portfolio mean default rate and the portfolio recovery rate. 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 quantitative results for each rated tranche changes when the portfolio’s expected default rate increases by 50% and the portfolio’s expected recovery rate reduces by 50%, respectively:

• Serie A: sensitivity to default rate assumptions, two notches; sensitivity to recovery rates, zero notches;
• Serie B: sensitivity to default rate assumptions, two notches; sensitivity to recovery rates, two notches.

Methodology
The methodologies applicable for this preliminary rating are the General Structured Finance Methodology,, the SME ABS Rating Methodology, and the Rating Methodology for Counterparty Risk in Structured Finance Transactions. 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.
Historical default rates of the entities rated by Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. Please also refer to 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 definition of default as well as definitions of rating notations can be found in Scope’s public credit rating methodologies on www.scoperatings.com.

Solicitation, key sources and quality of information
The rated entity and/or its agents participated in the rating process.
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity, the rated entities’ agents, third parties and Scope internal sources.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Scope Ratings GmbH has relied on a third-party asset audit. The external asset audit has no impact on the credit rating.
Prior to the issuance of the rating or outlook action, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds on which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Regulatory and legal disclosures
This credit rating and/or rating outlook is issued by Scope Ratings GmbH.
Lead analyst: Kreschma Nazary, Associate Director
Person responsible for approval of the rating: David Bergman, Executive Director
The ratings were first released by Scope on 20.11.2018 as preliminary ratings. The ratings were last updated on 26.11.2018.

Potential conflicts
Please see www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings.

Conditions of use / exclusion of liability
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