Press Release

DBRS Confirms Rating on IM Sabadell RMBS 3 FTA Class A Notes

RMBS
September 24, 2015

DBRS Ratings Limited (DBRS) has today confirmed its AA (high) (sf) rating on the Class A Mortgage-Backed Floating Rate Securitisation Notes (the Class A Notes) issued by IM Sabadell RMBS 3 Fondo De Titulizacion De Activos.

The confirmation of the rating on the Class A Notes is based on the following analytical considerations, as described more fully below:
-- Portfolio performance, in terms of delinquencies and defaults, as of June 2015.
-- Portfolio default rate, loss given default and expected loss assumptions for the remaining collateral pool.
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the AA (high) (sf) rating level.

The Notes are backed by a static portfolio of first-ranking mortgage loans secured by residential properties in Spain that were originated and continue to be serviced by Banco Sabadell. The current 90+ delinquency ratio as a percentage of the performing balance of the portfolio was 0.38%, and for cumulative defaults, defined as loans in arrears for more than 12 months over original balance, it was 2.49%.

The portfolio is performing within DBRS expectations, and the available credit enhancement for the Class A Notes is sufficient to cover DBRS expected losses at the current rating level. The rating analysis incorporates a sovereign-related stress component to address the impact of macroeconomic variables on collateral performance given the long-term foreign and local currency rating of A (low) for the Kingdom of Spain.

The Class A Notes are supported by two classes of subordinated notes (Classes B and C) and a Reserve Fund. As of the June 2015 payment date, credit enhancement for the Notes as a percentage of the non-defaulted mortgage loans was 11.99%. All three classes of Notes in the transactions are currently amortising pro rata.

The reserve fund in the transaction is currently at the target level, 8% of total Outstanding Balance of the Notes, and is amortising. The reserve fund covers both interest and principal payments shortfall on all three classes of Notes.

Banco Santander SA serves the role of Account Bank for the transaction, while Banco Sabadell, SA is the swap counterparty. The rating of Banco Santander SA is above the Minimum Institution Rating given the rating of the Notes as described in the DBRS ‘Legal Criteria for European Structured Finance Transactions’. The rating of Banco Sabadell SA is below the First Rating Threshold for a derivative counterparty as described in the DBRS ‘Derivative Criteria for European Structured Finance Transactions’. Banco Sabadell SA is currently posting collateral consistent with the framework.

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. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology. A review of the transaction’s legal documents was not conducted, as the documents have remained unchanged since the most recent rating action.

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 reports provided by InterMoney S.A., S.G.F.T. and data from the European DataWarehouse.

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 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 24 September 2014, when DBRS confirmed the rating on the Class A Notes at AA (high) (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 2.94% and 21.95%, respectively. At the AA (high) (sf) rating level, the corresponding PD is 22.71% and the LGD is 341.14%.
-- 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 A (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 A (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Series A Notes would be expected to fall to BBB (high) (sf).

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

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: Alastair Bigley
Initial Rating Date: 2 March 2011
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Kevin Ma
Rating Committee Chair: Diana Turner

DBRS Ratings Limited
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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
-- 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
-- Derivative Criteria for European Structured Finance Transactions

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.

Ratings

  • US = Lead Analyst based in USA
  • CA = Lead Analyst based in Canada
  • EU = Lead Analyst based in EU
  • UK = Lead Analyst based in UK
  • E = EU endorsed
  • U = UK endorsed
  • Unsolicited Participating With Access
  • Unsolicited Participating Without Access
  • Unsolicited Non-participating

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