DBRS Takes Ratings Action on FTA, Santander Hipotecario 9

DBRS Ratings Limited (“DBRS”) has reviewed FTA, Santander Hipotecario 9 (the “Issuer”) and taken the following rating actions:
• Series A, confirmed at A (sf)
• Series B, confirmed at B (sf)
• Series C, confirmed at C (sf)

The Notes are backed by a portfolio of mortgage loans secured by residential properties in Spain originated and serviced by Banco Santander SA (“Santander”).

The portfolio of mortgages supporting the transaction is performing within DBRS expectations and the available credit enhancement for the Notes is sufficient to cover DBRS expected losses at the current rating levels of the Notes. The rating analysis incorporates a sovereign related stress component to address the impact of macroeconomic variables on collateral performance.

The Series C Notes were issued to fund the Cash Reserve Fund and are in a first loss position supported only by available excess spread. The rating for the Series C Notes addresses ultimate payment of interest and principal.

As of 19 May 2014, the current 90+ delinquency ratio as a percentage of the performing balance of the portfolio was 0.60%, while the cumulative default ratio was 0.03%.

Credit enhancement for the Series A Notes (as a percentage of the collateral balance) consists of subordination of the Series B Notes (44.64% as of 19 May 2014) and a Cash Reserve Fund (18.69% as of 19 May 2014) initially funded via the issuance of the Series C Notes. Credit enhancement of the Series B Notes consists solely of the Cash Reserve Fund (18.69%), which also provides liquidity support to the Notes and it is at is target level.

Banco Santander SA is the only counterparty in this transaction, acting as issuer, treasury account provider and paying agent. Banco Santander is an eligible counterparty as described in the DBRS Legal Criteria for European Structured Finance.

Notes:
All figures are in Euro unless otherwise noted.

The principal methodology applicable is the Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

This can be found on www.dbrs.com at:
http://www.dbrs.com/about/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” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include investor reports provided by Banco Santander SA and data from the European DataWarehouse. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

The last rating action on this transaction took place on 02 July 2013, when the ratings on the Series A, B and C Notes were assigned.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.

To assess the impact of the changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):
• DBRS expected a lifetime base case Probability of Default (PD) and Loss Given Default (LGD) for the pool based on a review of the current receivables. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.
• The base case PD and LGD of the current pool of mortgages for the Issuer are 27.16% and 49.58%, respectively. The corresponding levels at the AAA (sf) rating level are 63.65% and 70.86%.
• The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating of Series A Notes would be expected to remain at A (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Series A Notes would be expected to remain at A (sf), assuming no change in the LGD. Furthermore, if both PD and LGD increase by 50%, the rating would be expected to decrease to BB (high) (sf).

Series A Notes Risk Sensitivity:
• 25% increase in LGD, expected rating of A (sf)
• 50% increase in LGD, expected rating of A (sf)
• 25% increase in PD, expected rating of A (sf)
• 50% increase in PD, expected rating of A (sf)
• 25% increase in PD and 25% increase in LGD, expected rating of A (sf)
• 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)
• 50% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
• 50% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)

Series B Notes Risk Sensitivity:
• 25% increase in LGD, expected rating of B (sf)
• 50% increase in LGD, expected rating of C (sf)
• 25% increase in PD, expected rating of B (sf)
• 50% increase in PD, expected rating of C (sf)
• 25% increase in PD and 25% increase in LGD, expected rating of C (sf)
• 25% increase in PD and 50% increase in LGD, expected rating of C (sf)
• 50% increase in PD and 25% increase in LGD, expected rating of C (sf)
• 50% increase in PD and 50% increase in LGD, expected rating of C (sf)

Series C Notes Risk Sensitivity:
• 25% increase in LGD, expected rating of C (sf)
• 50% increase in LGD, expected rating of C (sf)
• 25% increase in PD, expected rating of C (sf)
• 50% increase in PD, expected rating of C (sf)
• 25% increase in PD and 25% increase in LGD, expected rating of C (sf)
• 25% increase in PD and 50% increase in LGD, expected rating of C (sf)
• 50% increase in PD and 25% increase in LGD, expected rating of C (sf)
• 50% increase in PD and 50% increase in LGD, expected rating of C (sf)

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: Alastair Bigley
Initial Rating Date: 2 July 2013
Initial Rating Committee Chair: Quincy Tang

Lead Surveillance Analyst: Dylan Cissou
Rating Committee Chair: Quincy Tang

DBRS Ratings Limited
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The rating methodologies and criteria used in the analysis of this transaction can be found at http://www.dbrs.com/about/methodologies

• Legal Criteria for European Structured Finance Transactions
• Master European Structured Finance Surveillance Methodology
• Operational Risk Assessment for European Structured Finance Servicers
• Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
• Unified Interest Rate Model for European Securitisations