Rating action

The transaction comprises the following rated instruments:

Class A (ISIN: ES0305380000), EUR 1,136.7m outstanding amount: affirmed at AAA_SF

Class B (ISIN: ES0305380018), EUR 532.0m outstanding amount: affirmed at BB_SF

Scope Ratings GmbH’s (Scope’s) review was based on available transaction reporting up to January 2021.

Transaction overview

The transaction is a static, true-sale securitisation of a EUR 3,325m portfolio (at closing) of loans originated by CaixaBank, S.A (CaixaBank) in the ordinary course of business. The securitised portfolio contains two main product types – unsecured receivables and mortgage receivables granted mainly to Spanish SMEs to finance diverse business needs. The transaction features two strictly sequential quarterly paying notes referenced to 3-month Euribor with combined priority of payments and a cash reserve available for default provisioning. The transaction closed on 22 November 2018 and its final legal maturity is 25 October 2051.

Rating rationale

Asset performance has been adequate so far. As of end-January 2021, total principal amount of loans affected by 90 days+ delinquencies accounted for 1.7% of the outstanding portfolio balance. Cumulative default rate on portfolio level is around 1.0% based on the 12-month default definition in the transaction, which remains below Scope’s assumption at closing. Particularly the secured segment registered lower than expected cumulative defaults. In the secured and unsecured portfolio segments cumulative default rate amounted to 0.4% and 1.1% of initial portfolio balance, respectively as of December 2020.

Class A credit enhancement has increased to 37.8% from 20.75% at closing, which was driven by structural deleveraging due to portfolio amortisation since closing. Class B benefits from subordination of the reserve fund only, accounting for 4% of the outstanding notes and amortising with no floor, which prevents build-up of credit enhancement for the Class B notes. Class B credit enhancement has slightly decreased from 4.75% at closing.

Considering the stressed macro-economic environment due to Covid-19 the portfolio is exposed to potential future increase in defaults. The economy of Spain experienced the largest recession among major euro-area economies in 2020. The pandemic still causes uncertainty about the portfolio’s future performance, as we believe the impact has still not fully crystallised yet.

The ratings are not constrained by the counterparty risk exposure to CaixaBank which performs all counterparty roles (account bank, servicer, paying agent). 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. We have also considered the bank’s systemic importance and resolvability in the assessment of counterparty risk.

Key rating drivers

Asset performance (positive)¹. As of 31 January 2021, 90+ days delinquencies account for 1.7% of the outstanding portfolio balance, while cumulative defaults are 1.0% as a percentage of the portfolio balance at closing.

Credit enhancement (positive). Class A credit enhancement has increased to 37.8% from 20.75% at closing, while class B benefits from around 4.56% credit enhancement provided by the reserve fund.

Macro-economic environment (negative)^2,3. The macro-economic outlook has deteriorated significantly since closing due to the Covid-19 pandemic, which can negatively impact future portfolio performance.

Amortising reserve fund (negative). The amortising nature of the reserve fund prevents the build-up of credit enhancement, which provides the main source of credit protection for the class B noteholders.

Unhedged interest rate risk (negative). Rising interest rates would lead to further spread compression, because a significant portion of the portfolio (32.1% by outstanding balance) pays a fixed-rate coupon, while the notes pay a floating rate referenced to three-month Euribor. The moderate expected life of the class A mitigates interest rate risk, whereas the class B’s longer expected life carries a greater risk.

Key rating-change drivers

Positive. Further deleveraging of the structure accompanied by solid asset performance may result in upgrade of the class B notes.

Negative. Further deterioration of the Spanish macroeconomic environment and increasing borrower default rates after expiry of the ongoing moratoria could negatively impact the ratings.

Quantitative analysis and assumptions

Scope Ratings has performed a cash flow analysis, considering the portfolio's characteristics and the transaction's main structural features, such as the notes’ priorities of payments, note size, the coupon on the notes, senior costs, as well as servicing fees. This analysis produces an expected loss and expected weighted average life for the notes.

Scope applied its large homogenous portfolio approximation approach when analysing the collateral pool and projecting cash flows over the expected amortisation period. The cash flow analysis considers the probability distribution of the portfolio’s default rate using an inverse Gaussian distribution.

Scope analysed the transaction by considering two portfolio segments, portfolio shares reflecting 31 December 2020 reporting. Secured loans account for 33.9%, unsecured loans account for 66.1% of the portfolio. Scope has updated its point-in-time mean default rate, and coefficient of variation assumptions and will not consider separate long-term assumptions in the future. The updated assumptions are:

• Mortgage secured loans: 6.0% mean default rate (from 10.5%), 68.2% coefficient of variation (from 50.0%). Rating-conditional recovery rate assumptions remained unchanged: 48.0% in the AAA rating scenario and 73.6% in the BB rating scenario.
   
• Unsecured loans: 5.2% mean default rate (from 4.5%), 55.0% coefficient of variation (from 60%). Rating-conditional recovery rate assumptions remained unchanged: 21.0% in the AAA rating scenario and 32.2% in the BB rating scenario.

Scope analysed the transaction under high (15%) and low (0%) prepayment scenarios.

Sensitivity analysis

Scope tested the resilience of the rating against deviations in 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 results for each rated instrument change compared to the assigned rating when the portfolio’s expected mean default rate increases by 50%, or the portfolio’s expected recovery rate decreases by 50%, respectively:

• Class A: sensitivity to default rate assumptions, 0 notches; sensitivity to recovery rates, 0 notches;
   
• Class B: sensitivity to default rate assumption, 0 notches; sensitivity to recovery rates, -1 notches.

Rating driver references
1. Public transaction reporting
2. Scope’s economic research
3. Scope’s economic research

Stress testing
Stress testing was performed by applying adjusted 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 these ratings: General Structured Finance Rating Methodology (14 December 2020), SME ABS Rating Methodology (26 May 2020) and Methodology for Counterparty Risk in Structured Finance (8 July 2020) are available on https://www.scoperatings.com/#!methodology/list.
The model used for these Credit Ratings is Scope Cash Flow SF EL Model Version 1.1, available in Scope Ratings’ list of models, published under https://www.scoperatings.com/#!methodology/list.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other 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 Credit Rating performance report at https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. 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 Credit 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 factors) are incorporated into the Credit 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 Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Rating: public domain, the Rated Entity, the Rated Entities’ Related Third Parties, 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 these Credit Ratings rating 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 received a third-party asset due diligence assessment/asset audit at closing of the transaction. The external due diligence assessment/asset audit was considered when preparing the Credit Ratings 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 Ratings and the principal grounds on which the Credit Ratings are based. Following that review, the Credit Rating was not amended before being issued.

Regulatory disclosures
This Credit Rating is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Rating is UK endorsed.
Lead analyst: Adam Plajner, Senior Analyst
Person responsible for approval of the Credit Rating: Antonio Casado, Executive Director
The final Credit Ratings were first released by Scope Ratings on 26 November 2018.

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
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