DBRS Assigns “A” Rating to Santander Totta Covered Bonds Programme Series 14

DBRS Ratings Limited (DBRS) has today assigned a rating of “A” to Series 14 issued under Santander Totta S.A. (Totta or the Issuer) Covered Bonds (CB) Programme (the Programme). At the same time, DBRS has confirmed the “A” ratings on all outstanding Series of Totta. Series 14 is a EUR 750 million fixed-rate security maturing in March 2022. Following the issuance of Series 14, there are EUR 6,750,000,000 of Obrigações Hipotecárias (OH or the Portuguese legislative CBs) issued under the Programme.

The ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point of BBB (high), being the Senior Unsecured Long-Term Debt & Deposit Rating of Totta. Totta is the Issuer and Reference Entity for the Programme;
-- A Legal and Structuring Framework (LSF) Assessment of Average assigned to Totta’s OH Programme;
-- A Cover Pool Credit Assessment (CPCA) of BB, being the lowest CPCA in line with the final CBs rating;
-- An LSF-Implied Likelihood (LSF-L) of BBB (high);
-- Two notches uplift for high recovery prospects;
-- A level of overcollateralisation (OC) to which DBRS gives credit of 15%, being the level of OC the Issuer commits to in the investor report. Such a level is not subject to haircut as DBRS has observed has been observed as historically persistent for the past 24 months.

The transaction was modelled with the DBRS European Covered Bond Cash Flow Model. The main assumptions focused on the timing of defaults and recoveries of the assets, interest rate stresses and market value spreads to calculate liquidation values on the cover pool.

Everything else being equal, a downgrade of the Issuer rating by two notches would lead to a downgrade of the LSF-L by one notch, resulting in a downgrade of the CBs rating by one notch.

In addition, everything else equal, the ratings of the Totta OH would be downgraded if any of the following occurs: (i) the sovereign rating of the Republic of Portugal were downgraded below BBB (low); (ii) the LSF Assessment associated with the Programme were downgraded to Modest; (iii) the quality and consistency of the cover pool were no longer sufficient to support two notches uplift for high recovery prospects; or (iv) volatility in the financial markets caused the currently estimated market value spreads to increase.

As at 31 December 2014, the cover pool had a total outstanding balance of EUR 7,989,997,375. The available OC after the new issuance is 18.37%, which is above the current Issuer commitment OC of 15.00%.

For further information on Totta’s OH Programme, please refer to the rating report at www.dbrs.com.

DBRS has assessed the LSF related to Totta’s OH as Average according to its rating methodology. For more information, please refer to DBRS commentaries “DBRS Assigns LSF Assessment to Portuguese Covered Bonds” and “Portuguese Covered Bonds: Legal and Structuring Framework Review,” both available at www.dbrs.com.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is Rating European Covered Bonds (December 2014), which can be found at http://www.dbrs.com/about/methodologies. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

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” at http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include historical default performance data and loan-by-loan level information on the cover pool provided by Totta that allowed DBRS to further assess the portfolio. DBRS considers that 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.

This rating concerns a newly issued financial instrument issued under an existing programme rated by DBRS.

The last rating action on this Programme took place on 17 December 2014, when DBRS upgraded the rating to “A” from A (low) following the implementation of DBRS’s “Rating European Covered Bonds” methodology published on 17 December 2014.

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

For further information on DBRS historic default rates published by the European Securities and Markets Administration 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: Keith Gorman
Initial Rating Date: 24 February 2012
Initial Rating Committee Chair: Claire Mezzanotte

Last Rating Date: 17 December 2014

Lead Analyst: Valentina Cicerone
Rating Committee Chair: Quincy Tang

DBRS Ratings Limited
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United Kingdom

Registered in England and Wales: No. 7139960.

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

-- Rating European Covered Bonds (December 2014)
-- Global Methodology for Rating Banks & Banking Organisations (June 2014)
-- Legal Criteria for European Structured Finance Transactions (December 2014)
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (January 2015)
-- Master European Structured Finance Surveillance Methodology (December 2014)
-- Operational Risk Assessment for European Structured Finance Servicers (January 2015)
-- Unified Interest Rate Model Methodology for European Securitisations (January 2013)