DBRS Confirms Santander Totta Covered Bonds Ratings at “A” and Assigns “A” Rating to Series 18

DBRS Ratings Limited (DBRS) has today confirmed the ratings on the outstanding series of the Obrigações Hipotecárias (OH or the Portuguese legislative covered bonds (CBs)) issued under Banco Santander Totta (Totta or the Issuer) Covered Bond Programme (the Programme) at “A.” The rating action follows the completion of a full review cycle.

Concurrently, DBRS has assigned an “A” rating to Series 18 issued under the Programme. Series 18 is a EUR 750,000,000 fixed-rate bond maturing in July 2023. Following the issuance of Series 18, and the repayment of Series 10, there are ten series of OBG outstanding under the Programme for a total nominal amount of EUR 6.95 billion.

The ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of BBB (high), being the Senior Unsecured Long-Term and Deposit Rating of Totta. Totta is the Issuer and Reference Entity for the Programme;
-- A Legal and Structuring Framework (LSF) Assessment of Average associated with the Programme;
-- A Cover Pool Credit Assessment (CPCA) of BB, being the lowest CPCA in line with the CBs rating;
-- An LSF-Implied Likelihood (LSF-L) of BBB (high);
-- Two notches of uplift for high recovery prospects;
-- A level of overcollateralisation (OC) to which DBRS gives credit of 15%, being the level of OC to which the Issuer commits in the investor report. Such a level is not subject to haircut as DBRS has observed it persisting for the past 24 months.

The transaction was modelled with the DBRS European Covered Bond Cash Flow Model. The main assumptions focused on the timing of defaults and recoveries of the assets, interest rate stresses and market value spreads to calculate liquidation values on the cover pool (CP).

Everything else being equal, a two-notch downgrade of the CBAP would lead to a one-notch downgrade of the LSF-L, resulting in a one-notch downgrade of the CBs rating. In addition, everything else equal, the ratings on the Totta OH would be downgraded if the quality and consistency of the CP were no longer sufficient to support a two-notch uplift for high recovery prospects.

As of June 2016, the CP assets amount to EUR 8.09 billion, resulting in a nominal OC of 16.34%. This is above the current Issuer commitment OC of 15.0%.

All the loans in the CP are prime residential mortgage loans with a weighted-average (WA) current unindexed loan-to-value ratio of 53.89% and a WA seasoning of 105 months. The CP is geographically diversified across the country and was originated to acquire first or second homes.

For further information on Totta’s OH Programme, please refer to the rating report at www.dbrs.com.

DBRS has assessed the LSF related to Totta’s OH as Average according to its rating methodology. For more information, please refer to DBRS’s commentaries, “DBRS Assigns LSF Assessment to Portuguese Covered Bonds” and “Portuguese Covered Bonds: Legal and Structuring Framework Review,” both available at www.dbrs.com.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is Rating European Covered Bonds. This 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. A review of the transaction’s legal documents was limited to the documentation pertaining to the issuance of Series 18. All the other documents have remained unchanged since the most recent rating action.

Other methodologies 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 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 investor reports provided by Totta. 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.

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.

The last rating action on this transaction took place on 15 April 2016, when DBRS assigned an “A” rating to Series 17 and confirmed the “A” rating on all OH outstanding under the Programme.

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

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: Keith Gorman
Initial Rating Date: 24 February 2012
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Vito Natale, Senior Vice President
Rating Committee Chair: Quincy Tang, 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.

-- Rating European Covered Bonds
-- Rating European Covered Bonds Addendum: Market Value Spreads Range (Midpoints)
-- Global Methodology for Rating Banks and Banking Organisations
--Critical Obligations Rating Criteria
-- DBRS Criteria: Support Assessments for Banks and Banking Organisations
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Operational Risk Assessment for European Structured Finance Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- Unified Interest Rate Model Methodology for European Securitisations
-- The Effect of Sovereign Risk on Securitisations in the Euro Area
-- Sovereign Ratings Provide a Benchmark for other DBRS Credit Ratings

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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.