Morningstar DBRS Reviews Its Legal and Structuring Framework Assessment for Spanish Covered Bonds

DBRS Ratings GmbH (Morningstar DBRS) reviewed its Legal and Structuring Framework (LSF) Assessment for Spanish Covered Bonds (CB) and changed it to "Very Strong" from "Strong", reflecting the upgrade of the credit rating of the Kingdom of Spain to A (high) with a Stable trend from "A" with a Positive trend on 29 November 2024 and the confirmation of this credit rating on 30 May 2025.

The "Very Strong" LSF Assessment associated with each of the Spanish CB programmes reflects Morningstar DBRS' view of:
(1) The Spanish law (Royal Decree-Law 24/2021, as subsequently modified) giving CB holders a preferential right to the cash flows derived from the mortgage credits and loans in the cover pool, as well as those cash flows deriving from the liquidity buffer, and substitute assets and derivative instruments in the cover pool, if any;
(2) The appointment of a special administrator to manage the CB programme in case of an issuer's insolvency or resolution. This special administrator will be separate from the general insolvency administrator, will ensure that the rights and interests of the CB holders are preserved, and will have wide powers to attempt a refinancing of the cover pool.
(3) The designation of an independent party to monitor the cover pool (cover pool monitor), whose requirements are very broad and detailed. The cover pool monitor will apprise the regulator (Bank of Spain) on a frequent basis.
(4) The dynamic liquidity buffer to cover temporary liquidity constraints, which the cover pool shall include at all times. This buffer shall cover the net liquidity outflow of the CB programme over the following 180 days.
(5) The Domicile Sovereign being a jurisdiction, rated A (high) with a Stable trend, for which CBs are a particularly important financing tool.

The change in the LSF assessment affects the following CB programmes:
-- Banco Bilbao Vizcaya Argentaria S.A. Covered Bonds (Cédulas Hipotecarias - Mortgages)
-- CaixaBank S.A. Covered Bonds (Cédulas Hipotecarias - Mortgages)
-- Banco Sabadell S.A. Covered Bonds (Cédulas Hipotecarias - Mortgages)
-- Kutxabank, S.A. Covered Bonds (Cédulas Hipotecarias - Mortgages)
-- Cajasur Banco S.A. Covered Bonds (Cédulas Hipotecárias - Mortgages)
-- Cajamar Caja Rural S.C.C. Covered Bonds (Cédulas Hipotecárias - Mortgages)
-- Cajamar Caja Rural S.C.C. Covered Bonds (Cédulas Territoriales - Public Sector)

For programmes where a significant portion of the outstanding CB series feature a maturity extension, Morningstar DBRS has also considered this characteristic.

For more information, please refer to Morningstar DBRS' commentaries "Spanish Mortgage Covered Bonds: Legal and Structuring Framework Review", available at https://dbrs.morningstar.com/research/399644, and "Assessment of European Jurisdictions for which Covered Bonds are Considered Systemically Important", available at https://dbrs.morningstar.com/research/410156.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
Credit rating actions on each relevant issuer are likely to have an impact on the credit ratings of the CB outstanding under each programme.

Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis are described separately:

-- For Banco Bilbao Vizcaya Argentaria S.A. Covered Bonds (Cédulas Hipotecarias - Mortgages) at https://dbrs.morningstar.com/research/447401

-- For CaixaBank S.A. Covered Bonds (Cédulas Hipotecarias - Mortgages) at https://dbrs.morningstar.com/research/445689

-- For Banco Sabadell S.A. Covered Bonds (Cédulas Hipotecarias - Mortgages) at https://dbrs.morningstar.com/research/441171

-- For Kutxabank, S.A. Covered Bonds (Cédulas Hipotecarias - Mortgages) at https://dbrs.morningstar.com/research/433915

-- For Cajasur Banco S.A. Covered Bonds (Cédulas Hipotecárias - Mortgages) at https://dbrs.morningstar.com/research/435375

-- For Cajamar Caja Rural S.C.C. Covered Bonds (Cédulas Hipotecárias - Mortgages) at https://dbrs.morningstar.com/research/434028

-- For Cajamar Caja Rural S.C.C. Covered Bonds (Cédulas Territoriales - Public Sector) at https://dbrs.morningstar.com/research/444344

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the "Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings" (16 May 2025) at https://dbrs.morningstar.com/research/454196.

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For more information on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.