Rating action

The rating actions are as follows:

Series A (ISIN ES0305643001), EUR 12,028,000,000: rated AAA_SF

Series B (ISIN ES0305643019), EUR 372,000,000: rated BBB-_SF

The latest information on the ratings, including the new issue ratings report and related methodologies, is available on this LINK.

Transaction overview

BBVA RMBS 21 FT is a EUR 12,400m static cash securitisation consisting of prime residential mortgage loans originated and serviced by Banco Bilbao Vizcaya Argentaria SA (BBVA) and extended to individual borrowers to finance properties in Spain.

The transaction is a repack of several early liquidated BBVA RMBS securitisation transactions (BBVA RMBS 10, 11, 12, 13, 15, 16 and 18) with additional loans granted by BBVA in its ordinary course of business. The securitised portfolio consists of first-lien mortgages extended to borrowers’ resident in Spain. The provisional pool’s balance as of 12 January 2021 is EUR 12,711m with no material obligor concentration. Mortgage loans in the current portfolio were originated between 2000 and 2021, with a strong concentration of about 69% of loans originated between 2006-11. The portfolio has a seasoning of 10.9 years and a weighted average remaining time to maturity of 22 years.

The current portfolio is subject to certain credit-positive eligibility restrictions, such as the exclusion of mortgages that are more than 30 days in arrears, restructured or delinquent. The mortgage loans have generally been used to purchase finished houses and have a low weighted average loan-to-value of 70%.

BBVA provides all money handling services including the holding of bank accounts, mortgage servicing and interest rate hedging. The rated instruments amortise sequentially and benefit from an amortising 5% cash reserve, which is fully funded at closing. Excess spread of 0.65% is contractually available through an interest rate swap.

The transaction closed on 21 March 2022 and has its legal final maturity on 18 November 2066.

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; and iii) the exposure to BBVA as the transaction’s major counterparty.

Credit enhancement of the rated notes stems from their respective subordination levels as well as the cash reserve. The structure benefits from an interest rate swap with BBVA, which protects the notes from interest rate risk and provides 0.65% of excess spread.

The ratings also account for the underlying portfolio’s credit quality, considering its expected performance under the current and future macroeconomic conditions in Spain. The amortising mortgages have a good credit performance, reflecting the generally prime status of mortgage borrowers in the portfolio, its high seasoning and proven crisis resilience.

BBVA performs all money handling roles in this transaction, including the roles of servicer, account bank and interest swap provider. The ratings reflect the counterparty risk exposure to the bank as well as the replacement of the bank in various roles at the loss of a BBB rating. Scope maintains a non-public credit assessment on BBVA. Europea de Titulización S.G.F.T. (EdT) manages the transaction.

Key rating drivers

Simple structure and credit enhancement (positive)¹. The transaction is static and the notes will amortise fully sequentially. In addition, the subordination, cash reserve and excess spread from the interest rate swap provide significant credit enhancement to protect both the senior and junior notes from losses in the underlying portfolio.

Portfolio characteristics (positive)^1,2,3. All loans are first-lien mortgages granted to individuals, mostly to purchase their main residence. Previously restructured loans have been excluded from the securitised portfolio and none of the mortgages will be in arrears more than 30 days at the constitution date. The seasoning of the portfolio (10.9 years) and the proven crisis resilience of a large portfolio share reflect positively on Scope’s expectation of future performance. The portfolio is very granular with the largest borrower, the top five borrowers and the top 10 borrowers accounting for 0.01%, 0.06% 0.10% of the portfolio’s total balance respectively. The top four regions (Catalonia, Andalusia, Madrid and Valencia), accounting for 69.1% of the portfolio, are among Spain’s wealthiest and represent the natural footprint of BBVA’s mortgage origination business.

Interest rate swap (positive)¹. The interest rate swap with BBVA partially mitigates the asset-liability interest rate mismatch. BBVA will receive all interest collected on the portfolio in exchange for paying an amount equal to the Series A and B interest costs and a 0.65% excess spread, based on the non-delinquent balance of the assets.

Liquidity risk (negative)¹. The positioning of the cash reserve replenishment before the payment of the Series B notes’ interest exposes the tranche to the risk of non-timely payment of interest, even in relatively benign default rate scenarios. The excess spread from the swap partially mitigates this risk and we incorporated the impact of this transaction structural element in our analysis.

Counterparty concentration (negative)¹. BBVA performs all counterparty roles in this transaction. A default of the bank without prior replacement is highly likely to result in a default on the transaction. The rating of the Series B notes is constrained by the credit quality of BBVA, as the entire credit enhancement of the notes, i.e. the cash reserve and the excess spread from the interest rate swap, is exposed to the bank.

Upside rating-change drivers

Stabilisation of Spanish macroeconomic conditions with a return to the pre-pandemic norm.

Downside rating-change drivers

A significant deterioration in BBVA’s credit profile may adversely impact the ratings of Series B.

Spanish macroeconomic uncertainty in relation to the global geopolitical context. The current geopolitical tensions may weigh negatively on collateral pool performance, as higher inflation may affect the capacity of borrowers to repay.

Quantitative analysis and assumptions

Scope used a cash flow model to analyse the transaction and applied a statistical distribution of defaults when modelling the granular collateral pool. The key assumptions derived were then applied to the cash flow analysis of the transaction over its amortisation period. A mean default rate of 2.5% and a coefficient of variation of 105.0% were applied over the portfolio’s expected weighted average life. Scope derived an expected portfolio default rate distribution based on 2014-21 vintage data supplemented by vintage and performance data in the context of previous BBVA RMBS transactions comprised of vintages from 2002-13 provided by BBVA and EdT.

The provided vintage data covers stressed periods, in particular the severe recession experienced in Spain from 2010-2014, and also periods of positive Spanish mortgage loan performance. The mean default rate reflects the consolidated vintage data accounting for the portfolio’s high seasoning and proven crisis resilience for a large portfolio share. To reflect a period of stress, Scope considered a decreasing seasoning benefit for higher rating categories, reflected with a relatively high default rate coefficient of variation.

Scope applied rating-conditional recovery rates of 45.0% for Series A, and 63% for Series B. Scope received historical performance data on recoveries, incorporating: i) curing; ii) potential restructuring; and iii) repossession. The recovery timing has a vectorised recovery schedule and a weighted average recovery lag of about two years.

Scope derived a front-loaded default timing term structure based on the portfolio’s amortisation schedule. Back-loaded default scenarios are less severe owing to credit enhancement build-up and the effect of seasoning on the portfolio.

A cash flow analysis was performed considering the portfolio’s characteristics and the transaction’s main structural features. Scope analysed the transaction within the range of a stressed high (5%) and low (0%) prepayment assumption.

Sensitivity analysis

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

The following shows how the results change compared to the assigned ratings in the event of: i) an increase in the mean default rate by 50%; and ii) a reduction in the recovery rate by 50%, respectively:

• Series A: sensitivity to default rate, zero notches; sensitivity to the recovery rate, zero notches;
   
• Series B: sensitivity to default rate, zero notches; sensitivity to the recovery rate, zero notches.

Rating driver references
1. Internal information and documents of the issuer, originator and arranger
2. Scope takes no action on the Kingdom of Spain
3. Sovereign Outlook 2022

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 using the Scope Ratings Cash Flow SF EL Model Version 1.1. The analysis incorporated 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, (General Structured Finance Rating Methodology, 17 December 2021; Methodology for Counterparty Risk in Structured Finance, 13 July 2021), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. 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-governance/definitions-and-scales. 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://scoperatings.com/governance-and-policies/rating-governance/methodologies.

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 had 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 at Lennéstraße 5 D-10785 Berlin, Germany, Tel +49-30-2789-0. The Credit Ratings are UK-endorsed.
Lead analyst Martin Hartmann, Associate Director.
Person responsible for approval of the Credit Ratings: Antonio Casado, Executive Director.
The preliminary Credit Ratings were first released by Scope Ratings on 18 March 2022. The final Credit Ratings were first released by Scope Ratings on 21 March 2022.

Potential conflicts
See http://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
© 2022 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.