Rating Action Commentary
ֳ Downgrades 4 Tranches of Miravet S.a r.l; Affirms Class A at 'AAAsf'; Off RWN
Fri 09 Oct, 2020 - 7:06 AM ET
ֳ - Madrid - 09 Oct 2020: ֳ has downgraded four tranches and affirmed one of the Miravet S.a r.l. transaction. The agency has also removed all classes of notes from Rating Watch Negative (RWN). The Outlooks are Negative. A full list of rating actions is below.
Transaction Summary
The transaction is a static securitisation of seasoned and fully amortising Spanish residential mortgages originated by Catalunya Banc, Caixa Catalunya, Caixa Tarragona and Caixa Manresa, entities that are fully owned by and were integrated into Banco Bilbao Vizcaya Argentaria, S.A. (BBVA, BBB+/Stable/F2).
KEY RATING DRIVERS
Coronavirus and Catalonia Additional Stresses
In its analysis of the transaction, ֳ has applied additional stress scenario analysis in conjunction with its "European RMBS Rating Criteria" in response to the coronavirus outbreak and the recent legislative developments in Catalonia.
We also consider a downside coronavirus scenario for sensitivity purposes whereby a more severe and prolonged period of stress is assumed. Under this scenario, ֳ's analysis accommodates a further 15% increase to the portfolio weighted average foreclosure frequency (WAFF) and a 15% decrease to recovery rates.
Downgrades Linked to Catalonia Leases
The downgrades primarily reflect the potentially adverse effects of Catalonian Decree Law 17/2019 in the mortgage market in Catalonia, which allows some defaulted borrowers in the region that meet defined eligibility criteria to remain in their homes as tenants for as long as 14 years and paying a low monthly rent.
Almost 72% of the securitised portfolio is located in this region. ֳ's rating assessment has accounted for a longer recovery timing on loan defaults in Catalonia that range between 72 and 96 months under 'B' and 'AAA' rating stresses, respectively, which compare against 48 and 60 months applicable to other regions.
Credit Enhancement Build-up
ֳ expects the senior notes credit enhancement (CE) protection to continue increasing as the transaction operates a fully sequential amortization of the notes. For example, class A notes CE had risen to 35.3% as of August 2020 from 33.5% at the closing date in December 2019. In addition, the high portfolio seasoning of around 12 years and the prevailing share of floating-rate loans in the low interest rate scenario are strong mitigants of macroeconomic uncertainty.
The Negative Outlook on classes A to D reflects the ratings' vulnerability over the longer term, driven by performance volatility if the economic outlook deteriorates as a consequence of a more severe coronavirus crisis. The sensitivity of the ratings to scenarios more severe than expected is provided in "Rating Sensitivities" below.
Low Take-up Rates on Payment Holidays
ֳ does not expect the pandemic support measures introduced by the Spanish government and lenders for vulnerable borrowers to negatively affect the SPV's liquidity position, given the low take-up rate of payment holidays, at 5.6% of the portfolio balance as of end-July 2020 (versus the Spanish national average of around 9%).
Risky Attributes
Around 78% of the portfolio is linked to loans with prior restructurings with a weighted average clean payment history of 7.9 years as of July 2020. The default rate of each re-performing loan is derived from the assessment of the payment record since the most recent date it was in arrears and the restructuring end-date. The transaction has also built up arrears equal to or greater than 90 days, at 8.4% of the current balance as of August 2020 compared to 6.4% at the closing date, which are subject to a foreclosure frequency floor assumption of 55% in a 'B' rating scenario.
The portfolio is highly exposed to Catalonia. Within ֳ's credit analysis, and to address the regional concentration risk, higher rating multiples are applied to the base foreclosure frequency assumption to the portion of the portfolio that exceeds 2.5x the population share of this region relative to the national count in line with ֳ's "European RMBS Rating Criteria".
Servicer Migration Risk Mitigated
The portfolio servicer migration, originally expected to take place by 1Q20, was postponed due to the coronavirus pandemic and its related lockdown measures. The updated migration schedule envisages Pepper Asset Services, S.L.U. as the long-term servicer to take over the portfolio servicing from Anticipa Real Estate S.L.U. by January 2021.
ֳ continues to view the risks of a servicer migration as adequately mitigated by Pepper's extensive portfolio on-boarding expertise, an updated migration plan not conditioned by any hard deadline, and BBVA's involvement and required approval as master servicer.
Criteria Variation - Treatment of Further Drawdowns
In ֳ's credit analysis of the portfolio, potential further drawdowns of the underlying mortgages were not considered when estimating portfolio loan-to-value (LTV) trends. This is substantiated by the zero instances registered to closing date since Anticipa took over as portfolio servicer in April 2015, and by the lack of evidence of any additional drawdowns being granted from closing until July 2020. This is driven by stringent conditions that discourage debtors from requesting further advances.
This variation to ֳ's "European RMBS Rating Criteria", according to which potential further advances should be considered during asset analysis affecting WAFF and recovery outputs, has a model-implied rating impact of one notch for the class A, B and D notes and three notches for the class C notes.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Increase in CE ratios as the transaction deleverages, able to fully compensate the credit losses and cash flow stresses commensurate with higher rating scenarios, all else being equal.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A longer-than-expected coronavirus crisis that erodes macroeconomic fundamentals and the mortgage market in Spain beyond ֳ's current base case. CE ratios unable to fully compensate the credit losses and cash flow stresses associated with the current ratings scenarios, all else being equal. To approximate this scenario, a rating sensitivity has been conducted by increasing default rates by 15% and reducing recovery expectations by 15%, which would imply downgrades of up to two categories for some notes.
A downgrade to Spain's Long-Term Issuer Default Rating that could decrease the maximum achievable rating for Spanish structured finance transactions. This because class A notes are capped at the 'AAAsf' maximum achievable rating in Spain, six notches above the sovereign Issuer Default Rating.
Best/Worst Case Rating Scenario
International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit /site/re/10111579.
CRITERIA VARIATION
Treatment of Further Drawdowns
In ֳ's credit analysis of the portfolio, potential further drawdowns of the underlying mortgages were not considered when estimating portfolio loan-to-value (LTV) trends. This is substantiated by the zero instances registered to closing date since Anticipa serviced the portfolio in April 2015, as well as by the lack of evidence of any additional drawdowns being granted since closing until July 2020. This is driven by stringent conditions that discourage debtors from requesting further advances.
This variation to ֳ's "European RMBS Rating Criteria", according to which potential further advances should be considered during asset analysis affecting WAFF and recovery outputs, has a model-implied rating impact of one notch for the class A, B and D notes and three notches for the class C notes.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by, ֳ in relation to this rating action.
DATA ADEQUACY
ֳ has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transaction. There were no findings that affected the rating analysis. ֳ has not conducted a review of origination files as part of its ongoing monitoring.
Prior to the transactions closing, ֳ reviewed the results of a third-party assessment conducted on the asset portfolio information and concluded that there were no findings that affected the rating analysis. ֳ did not conduct a review of a small targeted sample of the originator's origination files before the transaction closed. The subsequent performance of the transaction since closing is consistent with the agency's expectations given the operating environment and ֳ is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.
ֳ was not provided with loan-by-loan debt-to-income (DTI) or employment status information of the borrowers. ֳ has assumed all loans to be class 3 DTI, and that 80% of the borrowers in the pool are full-time employees with a fixed contract, while the remaining 20% are assumed to be self-employed.
These assumptions are consistent with the DTI and the presence of fixed contract employees in the comparable Hipocat securitisations that were originated by Catalunya Banc in the past and are equivalent to the assumptions made by ֳ for the two RMBS transactions (SRF 2017-1 and SRF 2017-2) rated in 2017 that have paid in full.
Overall, ֳ's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
LIMITED INFORMATION
ֳ was not provided with loan-by-loan debt-to-income (DTI) or employment status information of the borrowers. ֳ has assumed all loans to be class 3 DTI, and that 80% of the borrowers in the pool are full-time employees with a fixed contract, while the remaining 20% are assumed to be self-employed.
These assumptions are consistent with the DTI and presence of fixed-contract employees of the comparable Hipocat securitisations originated by Catalunya Banc in the past, in line with assumptions performed at transaction closing and are equivalent to the assumptions made by ֳ for the two SRF transactions (SRF 2017-1 and SRF 2017-2) rated in 2017.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on ֳ's ESG Relevance Scores, visit
Additional information is available on
PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer’s available public disclosure.
Applicable Criteria
Applicable Models
Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).
Additional Disclosures
Endorsement Status
| Miravet S.a R.L., Compartment 2019-1 | EU Endorsed |