DBRS Morningstar Confirms A (high) Rating of Caja Rural de Granada Covered Bond

DBRS Ratings GmbH (DBRS) confirmed its rating of A (high) on the single stand-alone Cédula Hipotecaria (CH, Spanish mortgage covered bond) issued under the Caja Rural de Granada SCC Covered Bonds Programme (CRG CH or the Programme). This rating action follows the completion of a full review of the rating.

The rating is based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of BBB. Caja Rural de Granada, Sociedad Cooperativa de Crédito (CRG) is the Issuer and the Reference Entity (RE) for the Programme. DBRS Morningstar has not assigned a Critical Obligations Rating to CRG and considers Spain a jurisdiction in which covered bonds are a particularly important funding instrument.
-- A legal and structuring framework (LSF) assessment of “Average” associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of BBB (low), which is the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L).
-- An LSF-L of A (low).
-- A two-notch uplift for high recovery prospects.
-- A level of overcollateralisation (OC) of 189% to which DBRS Morningstar gives credit, which is the minimum observed OC level over the past 12 months adjusted by a scaling factor of 0.90.

The transaction was analysed using the DBRS Morningstar European Covered Bond Cash Flow Tool. The main assumptions focused on the timing of defaults and recoveries of the assets, interest rate stresses, and market value spreads to calculate liquidation values on the CP.

Everything else being equal, a one-notch downgrade of the CBAP would lead to a one-notch downgrade of the LSF-L, resulting in a downgrade of the covered bonds rating by one notch. In addition, all else unchanged, the CH rating would be downgraded if any of the following were to occur: (1) the CPCA were downgraded below BBB (low); (2) the sovereign rating of the Kingdom of Spain were downgraded below A (low); (3) the LSF assessment associated with the Programme was downgraded; (4) the quality of the CP and the level of OC were no longer sufficient to support a two-notch uplift for high recovery prospects; (5) the relative amortisation profile of the CH and CP moved adversely; or (6) volatility in the financial markets were to cause the currently estimated market value spreads to increase.

The total outstanding amount of CH under the programme is currently EUR 600 million, while as of September 2019 the aggregate balance of mortgages in the CP was EUR 1.97 billion. This resulted in a total estimated OC of 229%. As of September 2019, the eligible CP stood at EUR 1.40 billion, resulting in an eligible OC of 134%.

Spanish covered bonds are backed by the entire mortgage book of the bank, except mortgage loans pledged to securitisations and bonos hipotecarios. As of September 2019, the CP comprised 24,110 mortgage loans with a weighted-average (WA) current unindexed loan-to-value ratio of 56.2%, and a 62.2% residential versus 37.8% nonresidential split. This is a 69-month seasoned CP that is geographically concentrated in the Autonomous Community of Andalusia (93.9%). All loans have been originated in euros.

As is customary in the Spanish market, CH holders do not receive the benefit of any swap contract to hedge the mismatches between the interest yield by the CP (95.9% floating rate linked to different indexes and resets) and the interest due on the CH (100% paying fixed rate). This risk is mitigated by the OC available and accounted for in the cash flow analysis.

All CP assets and liabilities are denominated in euros. As such, investors are not currently exposed to currency risk.

The DBRS Morningstar-calculated WA life of the assets is approximately ten years while that of the covered bonds is approximately 9 years. This generates an asset-liability mismatch that is mitigated by the available OC.

DBRS Morningstar has assessed the LSF related to the Programme as “Average” according to its “Rating and Monitoring Covered Bonds” methodology. For more information, please refer to DBRS Morningstar’s commentaries “DBRS Assigns Legal and Structuring Framework Assessment to Spanish Mortgage Covered Bonds Programmes” and “Spanish Mortgage Covered Bonds: Legal and Structuring Framework Review”, both available at www.dbrs.com.

For further information on the Programme, please refer to the rating report at www.dbrs.com.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is “Rating and Monitoring Covered Bonds”.

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the surveillance section of the principal methodology.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” methodology at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments

The sources of data and information used for these ratings include historical performance data, loan-level and stratification information on the CP provided by the Issuer that allowed DBRS Morningstar to further assess the portfolio.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial ratings, DBRS Morningstar was not supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating process.

The last rating action on this transaction took place on 12 December 2018, when DBRS Morningstar confirmed its rating on the outstanding CRG CH.

Information regarding DBRS Morningstar ratings, including definitions, policies and methodologies, is available on www.dbrs.com.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings GmbH, Sucursal en España are subject to EU and US regulations only.

Lead Analyst: Covadonga Aybar, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 23 December 2013

DBRS Ratings GmbH, Sucursal en España
Calle del Pinar, 5
28006 Madrid
Spain

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland

Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- Rating and Monitoring Covered Bonds
-- Rating and Monitoring Covered Bonds Addendum: Market Value Spreads
-- Global Methodology for Rating Banks and Banking Organisations
-- Legal Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- European RMBS Insight Methodology
-- European RMBS Insight: Spanish Addendum
-- Operational Risk Assessment for European Structured Finance Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating CLOs and CDOs of Large Corporate Credit
-- Rating CLOs Backed by Loans to European SMEs
-- Global Methodology for Rating Sovereign Governments

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.