DBRS Confirms and Upgrades Ratings on Notes Issued by FTA PYMES SANTANDER 10

DBRS Ratings Limited (DBRS) has today confirmed and upgraded its ratings on the following notes issued by FTA PYMES SANTANDER 10 (the Issuer):

-- €1,115,837,124.30 Series A Notes: Upgraded to AAA (sf) from AA (high) (sf).
-- €893,000,000.00 Series B Notes: Upgraded to BBB (high) (sf) from BB (high) (sf).
-- €760,000,000.00 Series C Notes: Confirmed at C (sf).

The transaction is a cash flow securitisation collateralised by a portfolio of bank loans originated by Banco Santander S.A. (Santander) and Banco Español de Crédito (Banesto, fully integrated in Santander in May 2013), to self-employed individuals and small and medium-sized enterprises (SMEs) based in Spain.

The rating on the Series A Notes addresses the timely payment of interest and the ultimate payment of principal payable on or before the Legal Maturity Date in August 2057. The ratings on the Series B and Series C Notes address the ultimate payment of interest and the ultimate payment of principal payable on or before the Legal Maturity Date in August 2057.

The rating actions reflect an annual review of the transaction. The Series A Notes are currently at 38.38% of their initial balance after two years since closing. Given this deleveraging, the current available credit enhancement for the Series A and B Notes has increased considerably, while the transaction performance is in line with DBRS’s expectations.

As of the 20 August 2015 payment date, 1-3 month delinquencies, 3-6 month delinquencies and over 6-month delinquencies were 0.782%, 0.145% and 0.131% of the outstanding principal balance, respectively, while the cumulative gross default ratio was 0.034% of the original principal balance.

The Reserve Fund (RF) is available to cover missed interest and principal payments on the Series A and B notes throughout the life of the deal. The current balance of the RF is EUR 760 million equal to the required RF level.

Santander acts as a Servicer and Account Bank provider (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 “Rating CLOs Backed by Loans to European Small and Medium-Sized Enterprises (SMEs)”. 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 (closing).

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

This may 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’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 these ratings include information provided by Santander de Titulización SGFT, S.A, and loan-level data from the European DataWarehouse GmbH.

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 18 August 2015, when DBRS confirmed the rating on the Class B Notes at BB (high) (sf) and they were removed from Under Review with Positive Implications. This is the first rating action on the Series A and C Notes since the Initial Rating Date.

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):
-- Probability of default (PD) rates used: base case PD of 4.43%, and a 10% and 20% increase in the base case PD.
-- Recovery rates used: base case recovery rates, corresponding to a recovery rate of 17.02% at the AAA (sf) stress level for the Series A Notes and a recovery rate of 22.31% at the BBB (high) (sf) stress level for the Series B Notes, a 10% and 20% decrease in the base case recovery rates.

DBRS concludes that either a hypothetical increase of the base PD by 20% or a hypothetical decrease of the Recovery Rate by 20%, ceteris paribus, would produce model results suggesting a confirmation of the Series A Notes at AAA (sf) and a confirmation of the Series B Notes at BBB (high) (sf). A scenario combining both a hypothetical increase in the PD by 20% and a hypothetical decrease in the Recovery Rate by 20% would produce model results suggesting a confirmation of the Series A Notes at AAA (sf) and a downgrade of the Series B Notes to BBB (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: Maria Lopez
Initial Rating Date: 25 November 2014
Initial Rating Committee Chair: Jerry van Koolbergen

Lead Surveillance Analyst: Alfonso Candelas
Rating Committee Chair: Jerry van Koolbergen

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960.

The rating methodologies 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
-- Rating CLOs Backed by Loans to European Small and Medium-Sized Enterprises (SMEs)
-- Operational Risk Assessment for European Structured Finance Servicers
-- Unified Interest Rate Model for European Securitisations
-- Cash Flow Assumptions for Corporate Credit Securitizations
-- Rating CLOs and CDOs of Large Corporate Credit
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda

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.