DBRS Takes Rating Actions on FTA, Santander Hipotecario 8

DBRS Ratings Limited (DBRS) has today taken the following rating actions on the bonds issued by FTA, Santander Hipotecario 8 (the Issuer):

-- €402,227,840 Series A Notes confirmed at AAA (sf)
-- €160,000,000 Series B Notes downgraded to CCC (sf) from BBB (sf)
-- €28,100,000 Series C Notes confirmed at C (sf)

The rating action reflects the following analytical considerations, as described more fully below:
-- An amendment to the transaction signed on 9 September 2015.
-- Portfolio performance, in terms of delinquencies and defaults, as of the August 2015 payment date.
-- Updated portfolio default rate, loss given default and expected loss assumptions for the remaining collateral pool.
-- Current available credit enhancement to the Series A, B and C Notes to cover the expected losses at the AAA (sf), CCC (sf) and C (sf) rating level respectively.

FTA, Santander Hipotecario 8 is a securitisation of Spanish prime residential mortgage loans originated and serviced by Banco Santander SA (Santander). The transaction follows the Spanish Securitisation Law and closed in December 2011.

The structural amendment consists of reducing the Reserve Fund and introducing a floor at 0% for the interest rate of the Notes. The initial balance of the Series A Notes has been decreased from €640,000,000 to €412,094,976 while the Series B Notes have been maintained at the same level at closing. The Series C Notes, issued to fund the Reserve Fund, have been reduced from €160,000,000 to €28,100,000 and are currently 5% of the outstanding amount of senior and subordinated tranches.

Prior to this amendment, the Reserve Fund was able to amortise once it had reached 40% of the Outstanding Balance of the Series A and B Notes, maintaining such percentage until the Reserve Fund reaches the floor of 10% of the initial amount of the Series A and B notes. After restructuring, the ratio of 40% has been modified at 10% as well as the floor at 1.756%.

As of the August 2015 payment date, the one- to two-month arrears are at 0.74% and current two- to three-month arrears are at 0.56%. The 90+ delinquency ratio steadily increased over the year and it is currently at 1.33%, and the current cumulative default ratio (as a percentage of the original portfolio) is currently at 3.45%.

The Series A Notes are supported by the subordination of the Series B Notes and Reserve Fund, which is available to cover senior fees, interest and principal of the Series A and B Notes. The Series B Notes are solely supported by the Reserve Fund. Series A and B Notes credit enhancement after restructuring is at 33.46% and 5% respectively, down from 40% and 20% at the initial DBRS rating and original structure respectively. The Series C Notes will be repaid according to the Reserve Fund amortisation.

Santander acts as Account Bank (as holder of the Treasury Account) for this transaction. Santander’s Issuer and Senior Debt public rating by DBRS is currently at “A”, which complies with the Minimum Institution Rating given the rating assigned to the Series A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is the “Master European Structured Finance Surveillance Methodology”, which can be found on www.dbrs.com at http://www.dbrs.com/about/methodologies. DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology. 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’s “The Effect of Sovereign Risk on Securitisations in the Euro Area” commentary on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include investor reports and an amendment agreement provided by Santander de Titulización, SGFT, SA and data from the European DataWarehouse GmbH. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality. DBRS does not rely upon third-party due diligence in order to conduct its analysis; DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

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 25 March 2015, when DBRS confirmed the ratings on the Series A, B and C Notes at AAA (sf), BBB (sf) and C (sf).

Information regarding DBRS ratings, including definitions, policies and methodologies is available at www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with 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 assets. 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 13.99% and 41.20%, respectively. At the AAA (sf) rating level, the corresponding PD is 44.06% and the LGD 65.45%.
-- 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 the Series A Notes would be expected to fall to AA (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Series A Notes would be expected to fall to AA (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to fall to A (low) (sf).

Series A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)

The Series B and C Notes’ ratings would not be affected by any hypothetical change in neither LGD nor Expected Loss.

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: Lain Gutierrez
Initial Rating Date: 20 December 2011
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Antonio Di Marco
Rating Committee Chair: Diana Turner

DBRS Ratings Limited
1 Minster Court, 10th Floor
Mincing Lane
London
EC3R 7AA
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.

-- Legal Criteria for European Structured Finance Transactions (December 2014)
-- Master European Structured Finance Surveillance Methodology (April 2015)
-- Operational Risk Assessment for European Structured Finance Servicers (January 2015)
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (July 2015)
-- Unified Interest Rate Model for European Securitisations (January 2013)

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.