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    NEWS

    IM BCC Cajamar PYME 3 Class A Spanish SME CLO Rating Raised; Class B Rating Affirmed
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    IM BCC Cajamar PYME 3 Class A Spanish SME CLO Rating Raised; Class B Rating Affirmed

    Overview

    • We raised to 'AA (sf)' from 'A (sf)' our rating on IM BCC Cajamar PYME 3, Fondo de Titulizacion's class A notes following our review of the transaction under our relevant criteria.
    • At the same time, we affirmed our 'CCC- (sf)' rating on the class B notes.
    • Cajamar PYME 3 is a securitization of a pool of secured and unsecured loans originated by Cajamar Caja Rural, Sociedad Cooperativa de Crédito and granted to Spanish SMEs.

    PARIS (S&P Global Ratings) July 13, 2023--S&P Global Ratings today raised to 'AA (sf)' from 'A (sf)' its credit rating on IM BCC Cajamar PYME 3, Fondo de Titulizacion's class A notes. At the same time, we affirmed our 'CCC- (sf)' rating on the class B notes.

    The transaction is a securitization of a pool of performing secured and unsecured loans granted to Spanish small and midsize enterprises (SMEs) according to the European Commission's definition.

    The portfolio is well diversified with more than 15,000 loans granted to Spanish SME borrowers, concentrated in the regions of Andalucia (31%) and Valencia (21%). The transaction is structured with a combined waterfall for both principal and interest payments.

    The transaction includes a nonamortizing cash reserve, funded on the closing date, which provides liquidity support to the notes throughout the transaction's life. This reserve will eventually be used to redeem the notes.

    Our ratings on the class A and B notes reflects our assessment of the underlying asset pool's credit and cash flow characteristics, as well as our analysis of the transaction's exposure to counterparty, operational, and legal risks.

    Our rating on the class A notes reflects timely payment of interest and ultimate payment of principal on the legal final maturity of the notes. Our rating on the class B notes reflects ultimate payment of interest and principal.

    Our analysis indicates that the available credit enhancement for the class A notes has increased since closing and mitigates the notes' exposure to credit and cash flow risks at higher ratings (see "New Issue: IM BCC Cajamar PYME 3, Fondo de Titulizacion," April 9, 2021). However, the maximum potential rating in the transaction is 'AA' due to counterparty risk exposure. The class B notes remain collateralized solely by the reserve fund, which can be used to cover interest shortfall.

    We used data from the May 2023 report and April 2023 loan-level data to perform our credit and cash flow analysis. We applied our European SME CLO criteria, structured finance sovereign risk criteria, and revised counterparty criteria (see "Related Criteria").

    Credit analysis

    The underlying portfolio has amortized by €495.57 million since closing, with a current outstanding balance of €504,43 million. The amortization of the portfolio has resulted in a corresponding €495.57 million paydown of the class A notes, which currently have an outstanding balance of €274,43 million. Therefore, the class A notes' credit enhancement has increased since closing. Due to the deleveraging of the class A notes, the credit enhancement for the class B notes has also increased.

    As of the April 2023 report, cumulative defaults represent only 0.64% of the initial portfolio balance and arrears remain low.

    We applied our European SME CLO criteria to determine the scenario default rates (SDRs)--the minimum level of portfolio defaults we expect each tranche can withstand at a specific rating level--using CDO Evaluator.

    To determine the SDR, we adjusted the archetypical European SME average 'b+' credit quality to reflect the following factors: country, originator, and portfolio selection.

    At closing, under our criteria, we ranked the originator in this transaction in the strong category. Taking into account Spain's Banking Industry Country Risk Assessment (BICRA) score of 4 and the originator's average annual observed default frequency, we adjusted upward by one notch the 'b+' archetypical average credit quality to 'bb-' (see "Banking Industry Country Risk Assessment: Spain," published on April 14, 2023).

    At closing, we determined that there was no adverse selection in the securitized portfolio's creditworthiness when compared against the originator's SME loan book, and so we did not adjust the average credit quality to address portfolio selection bias.

    We then adjusted the average credit quality of the collateral portfolio to 'ccc+' to take into account ongoing macroeconomic factors at the time, low seasoning of the portfolio, and concerns over the period of consideration for calculating the originator's average annual observed default frequency (see "New Issue: IM BCC Cajamar PYME 3, Fondo de Titulizacion," published on April 9, 2021).

    For this review we raised the average credit quality assessment to 'b' from 'ccc+' to reflect the portfolio's improved seasoning and performance. We used this 'b' assessment to generate our 'AAA' SDR.

    We calculated the 'B' SDR based primarily on our analysis of historical SME performance data, the weighted-average life of the portfolio, and our projections of the transaction's future performance considering the portfolio concentration. In addition, we assessed market developments, macroeconomic factors, changes in country risk, and the way these factors are likely to affect the loan portfolio's creditworthiness. In doing so we maintained our 'B' case SDR at 12%. We interpolated the SDRs for rating levels between 'B' and 'AAA' in accordance with our European SME CLO criteria.

    Recovery rate analysis

    At closing, we determined the appropriateness of the recovery rates outlined in our SME CLO criteria by comparing them with the recovery rates historically experienced by the originator from 2016 onward.

    Based on the originator's historical recoveries, we assumed that the issuer would receive 37% of recoveries in a 'B' rating scenario. We then adjusted this base-case recovery rate for each of the rating categories in accordance with our SME CLO criteria.

    Since closing, the unsecured loans have repaid at a quicker rate than we assumed with the secured/unsecured proportion increasing to 35%/65% from 25%/75%. As our SME CLO criteria recovery rates are higher for secured loans than for unsecured loans, the higher proportion of secured loans has resulted in an average 2% increase in our assumed recovery rates at each rating level.

    Cash flow analysis

    We used the portfolio balance the servicer considered to be performing, the current weighted-average spread, and the above WARRs. We subjected the capital structure to various cash flow stress scenarios, incorporating different default patterns and interest rate curves, to determine the rating level, based on the available credit enhancement for the class A and B notes under our European SME CLO criteria.

    Under our structured finance sovereign risk criteria, we consider the transaction's exposure to country risk sufficiently mitigated at the assigned rating for the class A notes (see "Incorporating Sovereign Risk In Rating Structured Finance Securities: Methodology And Assumptions," published on Jan. 30, 2019).

    The transaction's documented counterparty replacement and remedy mechanisms adequately mitigate its exposure to counterparty risk under our current counterparty criteria at the assigned ratings (see "Counterparty Risk Framework: Methodology And Assumptions," published on March 8, 2019).

    The transaction's legal structure and framework is bankruptcy remote, in line with our legal criteria (see "Asset Isolation And Special-Purpose Entity Methodology," published on March 29, 2017).

    Rating rationale

    Based on the portfolio's positive performance, as well as our analysis of the transaction's exposure to counterparty, legal and operational risks, we consider the available credit enhancement for the class A notes to be commensurate with a higher rating. This reflects ongoing macroeconomic factors that could affect future performance. We therefore raised to 'AA (sf)' from 'A (sf)' our rating on the class A notes. At the same time, despite an improvement in credit enhancement, the class B notes remain collateralized solely by the reserve fund and so we have affirmed our 'CCC- (sf)' rating.

    Related Criteria

    Related Research

    Primary Credit Analyst:John Finn, Paris +33 144206767;
    john.finn@spglobal.com
    Secondary Contact:Emanuele Tamburrano, London + 44 20 7176 3825;
    emanuele.tamburrano@spglobal.com
    Research Contributor:Harshala Koyande, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

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