DBRS Confirms Rating on Class A Notes of FT RMBS Prado III

DBRS Ratings Limited (DBRS) confirmed its rating on the Class A Notes issued by FT RMBS Prado III (the Issuer) at AAA (sf).

The confirmation reflects an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance in terms of delinquencies and defaults, as of the September 2017 payment date.
-- Probability of default (PD) rate, loss given default (LGD) rate and expected loss assumptions for the remaining portfolio collateral.
-- The current available credit enhancement (CE) to the Class A Notes to cover the expected losses at the AAA (sf) rating level.

FT RMBS Prado III is a securitisation of residential mortgage loans secured by first-lien mortgages originated and serviced by Unión De Créditos Inmobiliarios S.A., E.F.C. (UCI or the Seller) in Spain. The Issuer used the proceeds of the Class A Notes and a subordinated loan (the Subordinated Loan 1) to fund the purchase of the mortgage portfolio from the Seller.

PORTFOLIO PERFORMANCE
The performance of the collateral portfolio is within DBRS’s expectations. As of September 2017, loans more than 90 days in arrears represented 0.3% of the outstanding performing portfolio collateral balance. Defaults are defined as loans in arrears for more than 12 months. To date, no defaults have been reported; however, only three payment dates have elapsed since the closing date.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the remaining pool and updated its PD and LGD assumptions on the remaining portfolio collateral pool to 30.7% and 50.4%, respectively, at the AAA (sf) rating level.

CREDIT ENHANCEMENT
The CE to the Class A Notes consisting of subordination has increased to 27.2% from 24.1% at transaction closing. The transaction also benefits from an amortising reserve fund (RF) that has been funded through an additional subordinated loan (Subordinated Loan 2) and is available to cover senior expenses and interest of the Class A Notes. The RF is currently at its target level of EUR 9.9 million.

Banco Santander S.A. (Santander) is the Account Bank of the transaction. The Account Bank reference rating of ‘A’ is one notch below DBRS’s public Long-Term Critical Obligations Rating (COR) of Santander at A (high). As such, Santander complies with the Minimum Institution Rating 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 to the rating is: “Master European Structured Finance Surveillance Methodology.”

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 legal documents was not conducted as the legal 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.

These 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” at: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of data and information used for this rating include an investor report from Santander de Titulización, SGFT, S.A. and loan-level data from the European DataWarehouse GmbH.

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

At the time of the initial rating, DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS considers the data and information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

The last rating action on this transaction took place on 27 October 2016, when DBRS finalised its rating of AAA (sf) on the Class A Notes.

The lead analyst responsibilities for this transaction have been transferred to Francesco Amato.

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

To assess the impact of 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”):
-- DBRS expected a lifetime base case PD and 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 assumptions for the remaining portfolio collateral are 8.4% and 32.6%, respectively. At the AAA (sf) rating level, the corresponding PD is 30.7% and the LGD is 50.4%.

-- 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 on the Class A Notes would be expected to be at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A Notes would be expected to be at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and the LGD increase by 50%, the rating on the Class A Notes would be expected to be at AAA (sf).

Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

For further information on DBRS historical default rates published by the European Securities and Markets Authority (“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 and US regulations only
Lead Analyst: Francesco Amato, Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 10 October 2016

DBRS Ratings Limited
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology
-- European RMBS Insight: Spanish Addendum
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Unified Interest Rate Model for European Securitisations

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.