Rating action

The rating actions are as follows:

Class A: EUR 2,350.0m: preliminary rating (P)AA-_SF
Class B: EUR 150.0m: preliminary rating (P)BBB-_SF

Preliminary ratings rely on the information made available to Scope up to 10 March 2021. Scope will assign final ratings conditional to the review of the final version of all transaction documents and legal opinions. Final ratings may deviate from preliminary ratings. 

Transaction overview

The transaction is a static cash securitisation of unsecured consumer loans extended to individuals in Spain by Banco Bilbao Vizcaya Argentaria S.A. (BBVA).

The structure comprises two classes of notes that fund the EUR 2.5bn securitised portfolio as well as a subordinated loan that funds the EUR 125.0m cash reserve. The fixed-rate notes are fully sequential and draw from combined principal and interest available from the collateral. Credit enhancement for the class A notes is provided via subordination, the cash reserve, and excess spread. The notes pay quarterly with a legal maturity on 16 December 2033.

Rating rationale

The ratings reflect i) the legal and financial structure of the transaction; ii) the quality of the underlying collateral in the context of the Spanish macroeconomic environment; iii) the ability of the originator and servicer, BBVA; iv) the counterparty credit risk exposure to BBVA as account bank and paying agent; and v) the ability of Europea de Titulización SGFT S.A., the management company.

The ratings consider the notes’ protection against portfolio losses, provided by their respective credit enhancement. The class A rating benefits from sequential note amortisation, resulting in an expected weighted average life of 2.0 years. The Class B notes’ longer weighted average life of 6.0 years create an exposure to uncertainties in the Spanish economy. In addition, the cash reserve will be available to cover class B eventual payment shortfalls only after class A notes have fully amortised.

Key rating drivers

Excess spread (positive). The significant excess spread (4.9% assumed at closing) protects against potential collateral losses.¹

Experienced loan originator and servicer (positive). BBVA has been originating and servicing consumer loans in Spain for 164 years. The bank is the second largest financing platform in Spain and has a global footprint, which provides additional experience from other jurisdictions.²

Class A’s short expected life (positive). The class A notes are expected to be exposed for a relatively short period to counterparty risk and possible macroeconomic deterioration. The class A expected weighted average life is 2.0 years, under a 15% constant prepayment rate scenario.³

No interest rate risk (positive). Interest rate risk is immaterial because 98.8% of the assets are fixed-rate loans and the notes pay a fixed-rate coupon.^1,4

Simple and transparent structure (positive). The deal features a swapless, strictly sequential, two-tranche structure with a combined priority of payments and an adequately sized cash reserve.⁴

Counterparty concentration (negative). BBVA performs all counterparty roles in the transaction. Counterparty risk from the financial exposure to BBVA as account bank and paying agent is mitigated by the bank’s high credit quality and by a replacement mechanism should its issuer rating fall below stipulated trigger level.⁴

Weak macroeconomic outlook (negative). The Spanish economy is currently challenged by two adverse events, Covid-19 and the general economic slowdown in Europe, which Scope expects to result in rising unemployment and decreasing household income.⁵

Rating-change drivers

Positive. Faster-than-expected Spanish economic recovery after Covid-19 pandemic will drive a stronger deal performance and could positively impact the ratings.

Negative. Higher-than-expected defaults and/or lower-than-expected recoveries upon asset default could negatively impact the ratings.

Quantitative analysis and assumptions

A cash flow analysis was performed considering the collateral portfolio’s characteristics and the transaction’s main structural features. Scope applied a large homogenous portfolio approximation approach when analysing the collateral pool and projecting cash flows over the expected amortisation period. The cash flow analysis used a probability distribution of the 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. The analysis considers the portfolio dated 3 February 2021.

A portfolio mean default rate of 5.5% and a coefficient of variation of 55.0% were applied over the portfolio’s expected weighted average life of 5.5 years. Scope considered a base case recovery rate of 20.0%. Rating-conditional recovery rates are 16.8% for BBB and 13.6% for AA after applying haircuts of respectively 16% and 32% on the base case recovery rate. Scope also assumed a portfolio yield of 6.0%.

Scope considered default rate and recovery vintage data from 2009 to 2020 on the loan book originated by BBVA, which is representative of the securitised portfolio. This period captures a severe recession in Spain.

Sensitivity analysis

Scope tested the resilience of the ratings against deviations of the main input parameters: the mean default rate and the 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 change when the portfolio’s expected mean default rate is increased by 50% and the portfolio’s expected recovery rate is reduced by 50%, respectively:

Class A: sensitivity to default rate, three notches; sensitivity to recovery rate, zero notches,

Class B: sensitivity to default rate, two notches; sensitivity to recovery rate, zero notches.

Rating driver references
1. Loan-by-loan data tape of the securitised pool (confidential)
2. Servicer’s presentation (confidential)
3. Scope’s Cash Flow Model (confidential)
4. Transaction documentation (confidential)
5. Scope’s 2021 Sovereign Outlook

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

Cash flow analysis
Scope Ratings performed a cash flow analysis of the transaction with the use of Scope Cash Flow SF EL Model Version 1.1 incorporating default and recovery rate assumptions over the portfolio’s amortisation period, taking 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.

Methodology
The methodologies used for this credit rating(s) and/or rating outlook(s) (Consumer and Auto ABS Rating Methodology, 3 March 2021; General Structured Finance Rating Methodology, 14 December 2020; Methodology for Counterparty Risk in Structured Finance, 8 July 2020) available on https://www.scoperatings.com/#!methodology/list.
The model/s used for this credit rating(s) and/or rating outlook(s) (Scope Cash Flow SF/EL Model Version 1.1 is available in Scope Ratings’ list of models, published under: https://www.scoperatings.com/#!methodology/list.
Information on the meaning of each rating category, including definitions of default and recoveries can be viewed in the “Rating Definitions - Credit Ratings and Ancillary Services” published on https://www.scoperatings.com/#!governance-and-policies/rating-scale. 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 Ratings’ definitions of default and rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale. Guidance and information on how Environmental, Social or Governance factors (ESG factor) are incorporated into the rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list.

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

Regulatory disclosures
This credit rating and/or rating outlook is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The credit rating and/or outlook is UK endorsed.
Lead analyst: Antonio Casado, Executive Director
Person responsible for approval of the credit rating: David Bergman, Managing Director
The preliminary credit ratings were first released by Scope Ratings on 10 March 2021.

Potential conflicts
Please see www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of credit ratings.

Conditions of use / exclusion of liability
© 2021 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions 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’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.