DBRS Confirms and Upgrades Ratings on the Notes Issued by FTA PYMES SANTANDER 11, Removing Under Review with Positive Implications Status

DBRS Ratings Limited (DBRS) has today confirmed and upgraded its ratings on the following notes issued by FTA PYMES SANTANDER 11 (the Issuer):

-- EUR 561,430,167.49 Series A Notes: Upgraded to A (high) (sf) from A (sf).
-- EUR 893,700,000.00 Series B Notes: Confirmed at CCC (sf).
-- EUR 178,800,000.00 Series C Notes: Confirmed at C (sf).

DBRS has also removed the Under Review with Positive Implications (UR-Pos.) designation for all ratings.

The transaction is a cash flow securitisation collateralised by a portfolio of term loans and credit lines originated by Banco Santander, S.A. (Banco Santander or the Originator) to small and medium-sized enterprises (SMEs) and self-employed individuals 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 2059. 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 2059.

The rating action reflects an annual review of the transaction and concludes the UR-Pos. status of the ratings. The ratings were placed UR-Pos. following a material update to the methodology DBRS applies to monitor the counterparty risks of the transaction (see “Legal Criteria for European Structured Finance Transactions,” published on 19 February 2016).

This methodology incorporates DBRS’s new Critical Obligations Ratings, which were introduced in the “Critical Obligations Rating Criteria” methodology published on 2 February 2016, and also provides more granular rating levels for account bank institution replacements and eligible investments.

The rating actions on the Series A, Series B and Series C Notes are based on the following analytical considerations as described more fully below:
-- Portfolio performance, in terms of delinquencies and defaults, as of the February 2016 payment date.
-- Updated and more granular rating levels introduced by the “Legal Criteria for European Structured Finance Transactions” for account bank institution replacement triggers.
-- Updated Weighted-Average Life and Recovery Rates assumptions. Recovery Rates already incorporates the updated Market Value Declines introduced by the recently published “European RMBS Insight Methodology” and “European RMBS Insight: Spanish Addendum” (17 May 2016).
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested.
-- The current available credit enhancement to the notes to cover the expected losses assumed in line with the A (high) (sf) and CCC (sf) rating levels for the Series A Notes and Series B Notes, respectively.

The Series C Notes were issued for the purpose of funding the Reserve Fund (RF) and the rating is based upon DBRS’s review of the following considerations:
-- The Series C Notes are in the first loss position and, as such, are highly likely to default.
-- Given the characteristics of the Series C Notes as defined in the transaction documents, the default most likely would only be recognised at the maturity or early termination of the transaction.

As of the February 2016 payment date, the cumulative balance of written-off loans was 0.07% of the original collateral balance, as per the transaction definition, and delinquencies greater than 90 days were 0.64% of the current collateral balance.

Credit enhancement has increased considerably as a result of the amortisation of the Series A Notes, currently at 20.94% of their initial balance. Credit enhancement for the Series A Notes (76.58%) is provided by the subordination of the Series B Notes and the RF. The Series B Notes benefit from the credit enhancement provided by the RF, currently fully funded at EUR 178.8 million, and only allowed to amortise after the first two years if certain conditions relating to the performance of the portfolio and deleveraging of the transaction are met.

The portfolio’s two distinct probability of default (PD) rates that have been used for loans classified as restructured (15.50%) and as normal loans (3.40%) have not changed.

Banco Santander S.A. is the Account Bank for the transaction. The Account bank reference rating of “A” – being one notch below the DBRS Long Term Critical Obligations Rating of Banco Santander S.A. at A (high) – 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.

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 19 February 2016, when the ratings of the Series A, B and C Notes were placed UR-Pos. Prior to that, on 19 May 2015 DBRS assigned the final ratings of the Series A, Series B and Series C Notes at A (sf), CCC (sf) and C (sf) respectively.

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

To assess the impact a change of the transaction parameters would have on the ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):
-- Probability of Default Rates Used: Base Case PD of 3.40% for “normal” loans and 15.50% for “restructured” loans, a 10% increase of the base case and a 20% increase of the base case PD.
-- Recovery Rates Used: Base Case Recovery Rates of 18.82% at the A (high) (sf) stress level and 24.32% at the CCC (sf) stress level for the Class A Notes and Class B Notes respectively, a 10% and 20% decrease in the Base Case Recovery Rates.

DBRS concludes that a hypothetical increase of the Base Case PD by 20% would lead to a confirmation of the Series A Notes at A (high) (sf) and a hypothetical decrease of the recovery rate by 20% would lead to a confirmation of the Series A Notes at A (high) (sf). A scenario combining both an increase in the Base Case PD by 10% and a decrease in the Base Case Recovery Rate by 10% would also lead to a confirmation of the Series A Notes at A (high) (sf).

Regarding the Series B Notes, a hypothetical increase of the Base Case PD by 20% or a hypothetical decrease of the Base Case Recovery Rate by 20% would lead to a downgrade of the Series B Notes to CCC (low) (sf). A scenario combining both an increase in the Base Case PD by 10% and a decrease in the Base Case Recovery Rate by 10% would lead to a downgrade of the Series B Notes to CCC (low) (sf).

Regarding the Series C Notes, the stress analysis is not appropriate.

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: 14 May 2015
Initial Rating Committee Chair: Jerry van Koolbergen

Lead Surveillance Analyst: Alfonso Candelas, Vice President
Rating Committee Chair: Jerry van Koolbergen, Managing Director

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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
-- European RMBS Insight Methodology
-- European RMBS Insight: Spanish Addendum

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.