Rating action

• Serie A (ES0305274005), EUR 269.6m outstanding amount: affirmed at AAA_SF
   
• Serie B (ES0305274013), EUR 171.5m outstanding amount: upgraded to BB+_SF from BB_SF

The review incorporates information provided in the transaction report for the period up to 30 September 2021.

Transaction overview

Caixabank Consumo 3 is a static securitisation of consumer loans extended to borrowers in Spain and originated by CaixaBank, S.A (CaixaBank). The current portfolio contains two product types: unsecured consumer loans (33.9% of the portfolio’s outstanding balance) and secured consumer loans backed by residential mortgages (66.1%). The transaction amortises sequentially, and its legal maturity is 20 March 2053.

Rating rationale

The rating actions reflect the transaction’s deleveraging and collateral performance. Serie A notes have amortised to EUR 269.6m (a 88.2% decrease in the Serie A balance at closing) and credit enhancement available to protect Serie A has significantly increased to 43.3% from 11.0% since closing.

The upgrade of Serie B reflects an improvement in collateral performance. Credit enhancement to the Serie B noteholders is solely provided by the amortising cash reserve, amounting to 4.5% of the outstanding notes’ balance.

Key rating drivers

Increased credit enhancement (positive). The level of credit enhancement for Serie A has increased to 43.3% from 11.0% at closing.

Significant excess spread (positive). The high excess spread that can be used to cover periodic losses and liquidity shortfalls is credit supportive. The spread between the weighted average rate from the assets and the cost of liabilities is 1.8%, after Scope’s senior fee assumptions.

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

Resilient collateral performance (positive). The collateral’s cumulative default rate over the initial balance (4.2%) as of September 2021 is in line with Scope’s expectations.

Long default definition (negative). Excess spread is not available to provision for defaults until assets are written off according to the transaction’s 18-month default definition. If excess spread is not trapped to provision for defaults in any given period, it will flow to the originator.

Rating-change drivers

Positive. Further transaction deleveraging may result in rating upgrades for the Serie B notes if credit enhancement builds up before credit losses crystallise.

Negative. Higher-than-expected default rates and/or lower-than-expected recoveries upon asset default may negatively impact the ratings. Deteriorating market conditions beyond Scope’s economic outlook may also negatively affect the ratings.

Quantitative analysis and assumptions

Scope determined the expected loss and weighted average life of the rated notes based on the portfolio’s characteristics and the transaction’s main structural features, such as the notes’ priorities of payments, note size, the notes’ respective coupon, senior costs and servicing fees.

The rating agency 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 considered the assets’ amortisation schedule and assumed a default timing reflecting a constant default intensity. This accounts for observed default behaviour and reduced duration risk as a result of portfolio deleveraging, resulting in an updated remaining lifetime mean default rate and coefficient of variation.

For the unsecured segment, Scope assumed a remaining lifetime mean default rate of 5.4%, a coefficient of variation of 55.9% and a base case rating-conditional recovery rate of 5%. For the secured segment, Scope assumed a remaining lifetime mean default rate of 7.2%, coefficient of variation of 51.2% and a base case rating-conditional recovery rate of 66%:

The transaction was analysed under high (15%) and low (0%) prepayment scenarios.

Sensitivity analysis

Scope tested the resilience of the assigned ratings 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 assigned ratings 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 default rate increases by 50%, or the portfolio’s expected recovery rate decreases by 50%, respectively:

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

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

Cash flow analysis
Scope Ratings performed a cash flow analysis of the transaction with the use of Scope Ratings’ 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 Credit Ratings, (Consumer and Auto ABS Rating Methodology, 3 March 2021; Methodology for Counterparty Risk in Structured Finance, 13 July 2021; General Structured Finance Rating Methodology,17 December 2021) are available on https://www.scoperatings.com/#!methodology/list.
The model used for these Credit Ratings is (Cash Flow SF EL Model Version 1.1.), available in Scope Ratings’ list of models, published under https://www.scoperatings.com/#!methodology/list.
Scope Ratings GmbH and Scope Ratings UK Limited apply the same methodologies/models and key rating assumptions for their credit rating services, while Scope Hamburg GmbH’s methodologies/models and key rating assumptions are different from those of Scope Ratings GmbH and Scope Ratings UK Limited.
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 Ratings: 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 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. 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 Ratings were not amended before being issued.

Regulatory disclosures
These Credit Ratings are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings are UK-endorsed.
Lead analyst: Chirag Shekhar, Analyst
Person responsible for approval of the Credit Ratings: Antonio Casado, Executive Director*
The final Credit Ratings were first released by Scope Ratings on 26 July 2017. The Credit Ratings were last updated on 5 March 2020.
*. To comply with Scope’s analyst rotation requirements, a rating committee with David Bergmann as PACR was convened on the 25 February 2022. The rating committee concluded with no action.

Potential conflicts
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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