DBRS Finalises Provisional Rating on HT ABANCA RMBS 1

DBRS Ratings Limited (DBRS) has today finalised the provisional rating of AAA (sf) on the EUR 738 million Series A notes issued by HT ABANCA RMBS I (the Issuer).

The Issuer is a securitisation of residential mortgage loans secured by a fully amortising first-lien mortgage on properties in Spain originated by ABANCA Corporación Bancaria, S.A. (Abanca). At the closing of the transaction, the Issuer will use the proceeds of the Series A notes and B Loan to fund the purchase of the mortgage portfolio from the Seller, Abanca. Abanca will also be the servicer of the portfolio. In addition, Abanca will provide separate subordinated loans to fund the initial expenses and the Reserve Fund. The securitisation will take place in the form of a fund, in accordance with Spanish Securitisation Law.

The ratings are based on DBRS’s review of the following analytical considerations:
-- The transaction’s capital structure and the form and sufficiency of available credit enhancement. The Series A notes benefit from EUR 162 million (18%) subordination of the B Loan and the EUR 40.5 million (4.5%) Reserve Fund, which is available to cover senior fees as well as interest and principal of the Series A notes until paid in full. The Reserve Fund target will amortise subject to target levels and performance triggers. The Series A notes will benefit from full sequential amortisation, where principal on the B Loan will not be paid until the Series A notes have been redeemed in full. Additionally, the Series A principal will be senior to the Reserve Fund replenishment and B Loan interest payments in the priority of payments.
-- DBRS was provided with the final portfolio equal to EUR 900 million (as of 19 May 2016), which was analysed using the European RMBS Insight Model (the Model) to estimate the defaults and losses of the portfolio. DBRS assigned a Spanish Underwriting Score of three to the portfolio. The main characteristics of the portfolio include (1) 78.9% indexed weighted-average (WA) current loan-to-value (INE Q2 2015); (2) the top three geographical concentrations areas are Galicia (43.6%), Catalonia (17.8%) and Andalusia (8.6%); (3) WA seasoning of 6.4 years; (4) 17.5% of the portfolio is classified as not-employed; (5) 21.3% of the portfolio is classified as high-margin loans (greater than 0.9%); and (6) 16.5% of the portfolio had a remaining term greater than 30 years.
-- The loans are floating-rate loans linked to 12-month Euribor. The Series A notes and B Loan are floating-rate liabilities indexed to three-month Euribor. The basis risk is mitigated by the amounts credited to the Reserve Fund. Additionally, DBRS stressed the interest rates as described in the DBRS methodology “Unified Interest Rate Model for European Securitisations.”
-- The credit quality of the mortgages backing the Series A notes and the ability of the servicer to perform its servicing responsibilities. DBRS was provided with Abanca’s historical mortgage performance data by origination quarter for arrears and recoveries as well as loan-level data for the mortgage portfolio. Details of the portfolio default rate (PDR), loss given default (LGD) and expected loss (EL) resulting from DBRS’s credit analysis of the mortgage portfolio using the Model at the AAA (sf) and base-case stress scenarios are detailed below. In accordance with the transaction documentation, the servicer is able to grant loan modifications without consent of the management company within the range of permitted variations. According to the documentation, permitted variations for up to 15% of the initial balance of the portfolio include the reduction of loan margins down to 0.65% and maturity extension up to the final payment date in November 2058. DBRS stressed 15% of the portfolio to limit the margin to 0.65% and extend the maturity to November 2058 in its cash flow analysis.
-- The transaction’s account bank agreement and respective replacement trigger require Banco Santander, S.A. (Santander) acting as treasury account to find (1) a replacement account bank or (2) an account bank guarantor upon the loss of an “A” account bank applicable rating. The DBRS Critical Obligation Rating (COR) of Santander is A (high), whereas the DBRS rating for Santander’s Senior Debt is “A.” The account bank applicable rating is the higher between one notch below the Santander COR or Santander’s Senior Debt rating.
-- The legal structure and presence of legal opinions addressing assignment of the assets to the Issuer and the consistency with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

As a result of the analytical considerations, DBRS derived a base-case PDR of 4.8% and LGD of 23.0%, which resulted in an EL of 1.1% using the Model. DBRS cash flow assumptions stress the timing of defaults and recoveries, prepayment speeds and interest rates. Based on a combination of these assumptions, a total of 16 cash flow scenarios were applied to test the capital structure and ratings of the notes.

Notes:
All figures are in euros unless otherwise noted.

The principal methodologies applicable are European RMBS Insight Methodology and European RMBS Insight: Spanish Addendum.

DBRS has applied the principal methodologies consistently and conducted a review of the transaction in accordance with the principal methodologies.

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

This may be found on www.dbrs.com at http://www.dbrs.com/about/methodologies.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include Abanca and Haya Titulización SGFT, S.A.

DBRS does not rely upon third-party due diligence in order to conduct its analysis.

DBRS was 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 on this transaction took place on 19 May 2016 when DBRS assigned provisional ratings to the Series A notes.

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

To assess the impact of the changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

In respect of the Series A notes, the PDR of 23.1% and LGD of 54.3%, corresponding to a AAA (sf) stress scenario, were stressed assuming 25% and 50% increase on the PD and LGD:
-- A hypothetical increase of the PDR of 25%, ceteris paribus, would not have an impact on the rating of AAA (sf).
-- A hypothetical increase of the PDR of 50%, ceteris paribus, would lead to a downgrade to AA (high) (sf).
-- A hypothetical increase of the LGD of 25%, ceteris paribus, would not have an impact on the rating of AAA (sf).
-- A hypothetical increase of the LGD of 50%, ceteris paribus, would not have an impact on the rating of AAA (sf).
-- A hypothetical increase of the PDR of 25% and LGD by 25%, ceteris paribus, would lead to a downgrade to AA (high) (sf).
-- A hypothetical increase of the PDR of 25% and LGD by 50%, ceteris paribus, would lead to a downgrade to AA (high) (sf).
-- A hypothetical increase of the PDR of 50% and LGD by 25%, ceteris paribus, would lead to a downgrade to AA (high) (sf).
-- A hypothetical increase of the PDR of 25% and LGD by 50%, ceteris paribus, would lead to a downgrade to AA (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.

Lead Analyst: Keith Gorman, Senior Vice President
Rating Date: 24 May 2016
Rating Committee Chair: Erin Stafford, Managing Director
Initial Rating Date: 19 May 2016

Lead Surveillance Analyst: Joana Seara da Costa, Financial Analyst

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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
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Unified Interest Rate Model for European Securitisations

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