Rating action

The rating actions are as follows:

• Class A (ES0305274005), EUR 117.9m outstanding amount: affirmed at AAA_SF 
   
• Class B (ES0305274013), EUR 171.5m outstanding amount: downgraded to BB_SF from BB+_SF

The rating on the Class B notes addresses the ultimate payment of interest and repayment of principal on or before the final maturity date.

The review incorporates information provided in the transaction report for the period up to 30 September 2022.

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 (13.3% of the portfolio’s outstanding balance) and secured consumer loans backed by residential mortgages (86.7%). 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. Class A notes have amortised to EUR 117.9m (a 94.8% decrease in the class A balance at closing) and credit enhancement available to protect class A has significantly increased to 63.7% from 11.0% since closing.

The downgrade of class B reflects a decline in portfolio yield, in part due to the fast amortisation of high interest paying unsecured consumer loans beyond Scope’s expectation and the effect of long reset dates of some floating loans referencing interest rates below current rates observed. Currently, while class A notes are still outstanding, cash reserve is not available to cover shortfalls on class B notes which may potentially create a liquidity stress on this tranche.

Key rating drivers

Increased class A credit enhancement (positive)¹. The level of credit enhancement for class A has increased to 63.7% from 11.0% at closing.

Sequential amortisation (positive)¹. The class A noteholders benefit from the full subordination of class B interest and principal; the transaction features a strictly sequential, combined waterfall with no deferral triggers.

Erosion of excess spread (negative)¹. Due to the amortisation of high interest paying unsecured consumer loans and negative effect of floating assets with long reset dates, the excess spread has reduced in the last 12 months which exposes the class B notes to further liquidity stress.

Long default definition (negative)¹. 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.

Unavailability of cash reserve to class B (negative)¹. Under the transaction’s waterfall, reserve fund is accessible to class B only after full repayment of class A. This may create interest shortfalls in case of a further portfolio yield compression.

Rating-change drivers

Positive. Further transaction deleveraging and improvement in portfolio yield may result in rating upgrades for the class B notes if credit enhancement builds up before credit losses crystalise.

Negative. Higher-than-expected default rates and/or lower-than-expected recoveries upon asset default and/or further portfolio yield compression 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 9.5%, a coefficient of variation of 32.0% and a base case rating-conditional recovery rate of 5%. For the secured segment, Scope assumed a remaining lifetime mean default rate of 8.0%, coefficient of variation of 36.0% 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:

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

Rating driver references
1. Transaction documents and reports

Stress testing
Stress testing was considered in the quantitative analysis by considering scenarios that stress factors, like defaults and Credit-Rating-adjusted recoveries, contributing to sensitivity of Credit Ratings and consider the likelihood of severe collateral losses or impaired cash flows. The impact on the rated instruments is weighted by the assumptions of the likelihood of the events in such scenarios occurring.

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 relevant asset assumptions and taking into account the transaction’s main structural features, such as the instruments’ priority of payments, the instruments’ size and coupons. The outcome of the analysis is an expected loss rate and an expected weighted average life for the instruments based on the generated cash flows.

Methodology
The methodologies used for these Credit Ratings, (Consumer and Auto ABS Rating Methodology, 3 March 2022; Counterparty Risk in Structured Finance,14 July 2022; General Structured Finance Rating Methodology, 17 December 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.
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. Scope Ratings has received a third-party asset due diligence assessment/asset audit. The external due diligence assessement/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: Elom Kwamin, Specialist
Person responsible for approval of the Credit Ratings: Benoit Vasseur, Executive Director.
The final Credit Ratings were first released by Scope Ratings on 26 July 2017. The Credit Ratings were last updated on 17 January 2022.

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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