DBRS Assigns AAA (sf) Final Rating to Series A Notes issued by BANKINTER EMPRESAS 1, F.T.A.

DBRS Ratings Limited (“DBRS”) has today assigned the final rating of AAA (sf) to the EUR 327,389,470.20 Series A Notes issued by BANKINTER EMPRESAS 1, F.T.A. (the “Issuer”). The transaction is a cash flow securitisation collateralised primarily by a portfolio of bank loans originated by Bankinter S.A. (“Bankinter”) to Spanish corporates and small and medium-sized enterprises (“SMEs”). As of 31 August 2011, the transaction had a performing notional amount of EUR 421.91 million and included 1,921 loans with a weighted average time to maturity of 6.49 years.

The transaction is an existing transaction that had its Constitution Date on 16 March 2009.

This rating is based upon DBRS’ review of the following analytical considerations:
• Transaction structure, the form and sufficiency of available credit enhancement.
-- Credit enhancement is in the form of subordination, a reserve funded through a subordinated loan and excess spread. For the purpose of analysing this transaction, DBRS considers the Series A Notes credit enhancement to be the difference between: i) the non-defaulted performing portfolio plus the current balance in the Reserve Fund and the proposed EUR 30 million increase in the Reserve Fund and ii) the total outstanding balance of the Series A Notes. The current credit enhancement level of the Series A Notes is equal to EUR 249.29 million and is sufficient to support the AAA (sf) rating.
-- Funded at the beginning of the transaction through the issuance of a subordinated loan granted by Bankinter, the Reserve Fund was initially set at EUR 125.315 million.
-- At the execution of the proposed amendment to the governing documents, Bankinter increased the Reserve Fund by EUR 30 million through an additional one-time funding. The Reserve Fund will not be increased over time through interest trapping.
-- The Reserve Fund is available to cover shortfalls in the senior expenses and interest on the Series A, Series B and Series C Notes (the “Bonds”).
---- The Reserve Fund does not cover the interest of the Series B Notes if: i) the cumulative balance of the defaulted loans is greater than 40.0% of the initial balance of the portfolio, and ii) the Series A Notes have not been fully amortised.
---- The Reserve Fund does not cover the interest of the Series C Notes if: i) the cumulative balance of the defaulted loans is greater than 32.00% of the initial balance of the portfolio, and ii) the Series A and Series B Notes have not been fully amortised.
-- The Reserve Fund has to be maintained at the Required Reserve Fund level. The Required Reserve Fund level can only be reduced if all three of the following apply:
---- The transaction is at least three years old.
---- The Reserve Fund is at least 43.75% of the outstanding aggregate balance of the Bonds. This percentage has been adjusted for the additional EUR 30 million that has been added to the Reserve Fund.
---- The Reserve Fund balance is greater than EUR 77.66 million, which is 10.94% of the initial aggregate balance of the Bonds.
-- In addition, the Required Reserve Fund level cannot be reduced unless:
---- The balance of the Reserve Fund is at least at the Required Reserve Fund level on the relevant Payment Date, or
---- The outstanding balance of the non-failed assets, that are more than 90 days in arrears, is greater than 1% of the total outstanding balance of the non-defaulted assets.
• The transaction has two interest rate swaps:
-- Floating/Floating swap, where the Issuer pays all interest corresponding to the reference indices from the performing floating rate loan collateral and receives the reference index of the Bonds (i.e. 3 month EURIBOR) on the non-defaulted floating rate loan collateral balance.
-- Fixed/Floating swap, where the Issuer pays all interest from the non-defaulted fixed rate loan collateral and receives the Bonds’ weighted average coupon plus 0.30% spread on the non-defaulted fixed rate loan collateral balance.
• The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the approved terms. For this transaction, the rating of the Series A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the Final Maturity Date, in accordance with the transaction documents. Interest and principal payments on the Notes will be made quarterly, generally on the 18th day of March, June, September and December. The next payment date will be 19 December 2011.

• The transaction parties’ financial strength and capabilities to perform their respective duties and the quality of origination, underwriting and servicing practices.

• Soundness of the legal structure and presence of legal opinions which address the true sale of the assets to the trust and the non-consolidation of the special purpose vehicle, as well as the consistency with the DBRS Legal Criteria for European Structured Finance Transactions.

The principal methodology is Master European Granular Corporate Securitisations (SME CLOs), which can be found on our website under Methodologies.

DBRS determined key inputs used in our analysis based on historical performance data provided for the originator and servicer as well as analysis of the current economic environment. Further information on DBRS’ analysis of this transaction will be available in a rating report on http://www.dbrs.com, or by contacting us at info@dbrs.com.

The sources of information used for this rating include parties involved in the rating, including but not limited to BANKINTER EMPRESAS 1, F.T.A., Europea de Titulización S.A., S.G.F.T. and Bankinter S.A.

DBRS considers the information available to it for the purposes of providing this rating was of average quality. DBRS adjusted its analysis to account for the quality of information provided. The source of our concern is the historical information provided for DBRS to determine the average annual default rate for corporate borrowers. The average annual default rate for corporate borrowers is a key input parameter in DBRS analysis, and is derived by DBRS from information provided to it by Bankinter. Bankinter provided historical default and delinquency information based on the notional amount of loans in its portfolio. DBRS requests that such information is provided based on the number of loans, and not the notional amount of loans. Historical default and delinquency information provided by notional could positively skew average annual default rate statistics due to the potential positive impact from large notional corporate borrowers, which generally have lower default rates. DBRS observes that default rates provided by notional amount could be between 1.5 to 3.0 times the default rates provided by number of loans when compared with identical data, but recognizes that such differences are originator and portfolio dependent.

However, Bankinter did supply additional default information based on the size of the borrower and DBRS was therefore able to use this data to analyse historical performance of Bankinter and account for any potential skew. As a result, the data provided by Bankinter is considered to be of average quality. Aside from the data quality issue with regards to the calculation of the average annual default rate, DBRS considers the other information available to it for the purposes of providing this rating was of satisfactory quality.

This is the first DBRS rating on this financial instrument.

For additional information on DBRS European SME CLOs, please see European Disclosure Requirements, located at http://www.dbrs.com/research/235269.
 
Lead Analyst: Simon Ross
Rating Committee Chair: Jerry van Koolbergen
Final Rating Date: 17 October 2011

Note:
All figures are in Euro unless otherwise noted.