DBRS Downgrades and Assigns Ratings to Santander Totta Covered Bond Programme

DBRS, Inc. (DBRS) has today downgraded the following tranches of the Santander Totta Covered Bond Programme (the Programme) and left them Under Review with Negative Implications:
• Series II, Tranche 1 downgraded from ‘A’ to ‘A’ (low)
• Series III, Tranche 1 downgraded from ‘A’ to ‘A’ (low)
• Series IV, Tranche 1 downgraded from ‘A’ to ‘A’ (low)
• Series IV, Tranche 2 downgraded from ‘A’ to ‘A’ (low)
• Series IV, Tranche 4 downgraded from ‘A’ to ‘A’ (low)
• Series IV, Tranche 5 downgraded from ‘A’ to ‘A’ (low)
• Series V, Tranche 1 downgraded from ‘A’ to ‘A’ (low)

Additionally, DBRS assigns the rating ‘A’ (low) – Under Review with Negative Implications to the following tranches from the Programme:
• Series VI, Tranche 1
• Series VII, Tranche 1
• Series VIII, Tranche 1

The ratings are Under Review with Negative Implications as a result of the 22 May 2012 DBRS placement of the Republic of Portugal’s long-term foreign and local currency debt ratings Under Review with Negative Implications. DBRS has recently announced the extension of its review on Portugal’s ratings on 22 August 2012 (see press release “DBRS Extends Its Review on Portugal’s Ratings”).

The rating actions follow the downgrade of Banco Santander Totta, S.A. (BST) from ‘A’ (low) to BBB (high) on 23 August 2012 and the issuance of the Series VII, Tranche 1 covered bond on 20 July 2012. Series VII, Tranche 1 is a €250 million covered bond with a coupon of 3-month Euribor + 2.50% maturing in August 2015.

The ratings are based on the following factors:
• The Covered Bonds are senior unsecured direct deposit obligations of BST which is rated BBB (high) Negative trend by DBRS.
• Portuguese Covered Bond Laws which in case of issuer insolvency give the holders of the Covered Bonds recourse to the cover pool in priority of other creditors.
• DBRS Legal and Structuring Framework assessment of “Adequate”.
• DBRS Cover Pool Credit Assessment of BBB (low).
• Issuer Commitment Overcollateralisation (OC) level of 30%.
• BST’s capabilities with respect to origination of cover pool assets and servicing of the cover pool.
• The credit quality of the collateral and structural features of the Programme (Extendable Maturity and collateral eligibility criteria).

As of 20 July 2012, the notional balance of the cover pool was €7.9 billion which results in a nominal OC level of 34%.

DBRS credit analysis of the cover pool is performed on a loan-level basis and includes a probability of default and loss given default assessment, an originator- and servicer-specific historical performance review, a Portuguese housing market and property price trend evaluation, and finally a cash flow simulation based on various stresses to timing of defaults and recoveries and interest rates.

Notes:
All figures are in Euros unless otherwise noted.

The principal methodologies applicable are:
• Master European Residential Mortgage-Backed Securities Rating Methodology
• Legal Criteria for European Structured Finance Transactions
• Rating European Covered Bonds
• Global Methodology for Rating Banks & Banking Organisations
• Swap Criteria For European Structured Finance Transactions
• Operational Risk Assessment for European RMBS Servicers
• Unified Interest Rate Model Methodology for European Securitisations

These can be found on dbrs.com under Methodologies. For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area”.

The sources of information used for this rating include a loan level collateral file of the cover pool provided by the issuer. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This is the first DBRS rating on the Series VI, Series VII and Series VIII covered bonds.

The rating on the Series VI, Series VII and Series VIII covered bonds concern a newly issued financial instrument.

For additional information on this rating, please see the linking document.

This credit rating has been issued outside the European Union (EU) and may be used for regulatory purposes by financial institutions in the EU.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: Keith Gorman
Rating Committee Chair: Claire Mezzanotte
Initial Rating Date: 27 February 2012
Most Recent Rating Update: 25 May 2012