Rating action

The transaction comprises the following rated instruments:

Class A (ISIN: ES0305380000), EUR 359.7m outstanding amount: affirmed at AAA_SF

Class B (ISIN: ES0305380018), EUR 532.0m outstanding amount: downgraded to BB-_SF from BB_SF

Scope Ratings GmbH’s (Scope’s) review was based on available transaction reporting up to 30 November 2022.

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

The transaction features good asset performance. As of end-October 2022, cumulative default rate on portfolio level is 1.6% based on the 12-month default definition in the transaction, which remains below Scope’s assumption at closing. Total principal amount of loans affected by 90 days+ delinquencies accounted for 3.2% of the outstanding portfolio balance.

Class A credit enhancement has increased to 64.0% from 20.75% at closing, which was driven by structural deleveraging due to portfolio amortisation. 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.

The transaction is partially exposed to unhedged interest rate risk, as currently 29.5% of the loans (by volume) pay a fixed-rate coupon, while the notes pay floating rate. As a result of recent changes in the interest environment, weighted average interest rate on the notes surpassed the asset portfolio’s yield. This is partially attributable to the lagged adjustment of the floating rate loans, the majority of which is linked to 12-month Euribor. Further increases in market interest rates may lead to increasing likelihood of interest payment deferral on class B notes.

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 October 2022, 90+ days delinquencies account for 3.2% of the outstanding portfolio balance, while cumulative defaults are 1.6% of the portfolio balance at closing. Cumulative recoveries of 25.3% outperform Scope’s expectation at closing, which considered a longer recovery time lag after defaults.

Credit enhancement (positive). Class A credit enhancement has increased to 64.0% from 20.75% at closing, while class B benefits from credit enhancement provided by the reserve fund after the repayment of class A notes.

Unhedged interest rate risk (negative)². Euribor rising further would lead to an increasing mismatch between the interest on the assets and the notes, because a significant portion of the portfolio (29.5%) 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.

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.

None of the key rating factors are ESG related.

Rating-change drivers

Positive. Further deleveraging of the structure accompanied by solid asset performance and permanently moderating interest rates could result in upgrade of the class B notes.

Negative. Worse-than-expected asset performance and a sudden material increase in market interest rates could negatively impact the class B rating.

Quantitative analysis and assumptions

Scope 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 30 September 2022 reporting. Secured loans account for 46.9%, unsecured loans account for 53.1% of the portfolio. Scope has updated its point-in-time mean default rate, and coefficient of variation assumptions. The updated assumptions are:

• Mortgage secured loans: 5.4% mean default rate (from 6.0%), 72.0% coefficient of variation (from 68.2%). Rating-conditional recovery rate assumptions remained unchanged: 48.0% in the AAA rating scenario and 73.6% in the BB rating scenario.
   
• Unsecured loans: 4.6% mean default rate (from 5.2%), 59.0% coefficient of variation (from 55.0%). 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, -1 notch; sensitivity to recovery rates, -2 notches

Rating driver references
1. Transaction reporting
2. European Data Warehouse

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, (General Structured Finance Rating Methodology, 17 December 2021; SME ABS Rating Methodology, 16 May 2022; Counterparty Risk Methodology, 14 July 2022) 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 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 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, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings are UK-endorsed.
Lead analyst: Adam Plajner, Associate Director
Person responsible for approval of the Credit Ratings: David Bergman, Managing Director
The final Credit Ratings were first released by Scope Ratings on 26 November 2018. The Credit Ratings were last updated on 11 February 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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