DBRS Finalises Provisional Rating of HT ABANCA RMBS II

DBRS Ratings Limited (DBRS) finalised its rating of AAA (sf) on the Class A notes issued by HT ABANCA RMBS II (the Issuer).

The rating addresses timely payment of interest and ultimate payment of principal.

The transaction is a securitsation of residential mortgage loans secured by first- lien mortgages originated by Abanca Corporacion Bancaria S.A. (Abanca or the Seller) in Spain. At closing of the transaction, the Issuer used the proceeds of the Class A notes and a subordinated loan provided by Abanca, to fund the purchase of the mortgage portfolio from the Seller. In addition, Abanca provided separate subordinated loans to fund both the initial expenses and the reserve fund. The securitisation is in the form of a fund, in accordance with Spanish Securitisation Law.

Abanca is the servicer of the portfolio and Banco Santander, S.A. the Account Bank and Principal Paying Agent in this transaction. The transaction is managed by Haya Titulacion, Sociedad Gestora de Fondos de Titulización, S.A.

The ratings are based upon a review by DBRS of the following analytical considerations:

-- The transaction’s capital structure, form and available credit enhancement. The Class A notes benefit from EUR 120.0 million (13.33%) subordination of the Loan B and the EUR 40.5 million (4.5%) from the Reserve Fund, which is available to cover senior expenses as well as interest and principal of the Class A notes until paid in full. The Reserve Fund will amortise in line with the Class A notes and Loan B, and becomes available for Loan B once the Class A notes have been fully amortised. The Reserve Fund will not amortise if certain performance triggers are breached. The Class A notes’ principal will be senior to the Loan B interest payments in the combined interest and principal priority of payments.

-- DBRS was provided with the loan-by-loan data tape of the portfolio, whose outstanding balance is EUR 907 million as of 24 November 2017. The main characteristics of the portfolio include: (1) 58.9% weighted-average current loan-to-value (WACLTV) and 73.9% indexed WA CLTV (INE Q4 2015); (2) the top three geographical concentrations of Galicia (45.4%), Catalonia (15.5%), and Valencia (8.7%); (3) 3.2% of the borrowers are non-nationals; and (4) a weighted-average loan seasoning of 8.9 years.

-- The loans are floating-rate mortgages and pay interest linked to 12-month Euribor, while the interest on the notes are floating-rate liabilities indexed to three-month Euribor. No swap is in place to mitigate basis risk potentially facing the Issuer. The potential mismatch is accounted for in DBRS’s cash flow analysis.

-- The credit quality of the mortgages backing the notes and the ability of the servicer to perform its servicing responsibilities. DBRS was provided with Abanca’s historical mortgage performance data, as well as the loan-level data for the mortgage portfolio. Details of the portfolio default rates (PD), loss given default (LGD), and expected losses (EL) resulting from DBRS’s credit analysis of the mortgage portfolio at the AAA (sf) stress scenario is detailed below.

-- The transaction’s Account Bank agreement and respective replacement trigger require Banco Santander S.A. (Banco Santander) acting as the treasury Account Bank to find (1) a replacement Account Bank; or (2) an Account Bank guarantor upon loss of an ‘A’ Account Bank rating. The DBRS Critical Obligations Rating (COR) of Banco Santander is A (high), while the DBRS rating for Banco Santander Issuer Rating is ‘A’. The Account Bank applicable rating is the higher of one notch below Banco Santander’s COR or Banco Santander’s Issuer rating.

-- The legal structure and presence of legal opinions addressing the assignment of the assets to the Issuer and the consistency with the DBRS “Legal Criteria for European Structured Finance Transactions” methodology.

As a result of the analytical considerations, DBRS derived a Base Case PD of 2.91% and LGD of 22.31%, which resulted in an EL of 0.65% using the European RMBS Insight Model. DBRS cash flow assumptions stress the timing of defaults, 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. The cash flows were analysed using Intex DealMaker.

Notes:

All figures are in euros unless otherwise noted.

The principal methodologies applicable to this rating 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 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 “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf

The sources of data and information used for this rating include Abanca, S.A and Haya Titulizacion, Sociedad Gestora de Fondos de Titulización, 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 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.

This rating concerns a newly issued financial instrument. This is the first DBRS rating on this financial instrument.

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”):

In respect of the Class A notes, the PD of 22.00% and LGD of 52.56%, corresponding to an AAA (sf) stress scenario, were stressed assuming 25% and 50% increase on the PD and LGD:
-- A hypothetical increase of the PD of 25%, ceteris paribus, would lead to a downgrade to AA (sf).
-- A hypothetical increase of the PD of 50%, ceteris paribus, would lead to a downgrade to A (high) (sf).
-- A hypothetical increase of the LGD of 25%, ceteris paribus, would lead to a downgrade to AA (high) (sf).
-- A hypothetical increase of the LGD of 50%, ceteris paribus, would lead to a downgrade to AA (low) (sf).
-- A hypothetical increase of the PD of 25% and LGD by 25%, ceteris paribus, would lead to a downgrade to A (high) (sf).
-- A hypothetical increase of the PD of 25% and LGD by 50%, ceteris paribus, would lead to a downgrade to A (sf).
-- A hypothetical increase of the PD of 50% and LGD by 25%, ceteris paribus, would lead to a downgrade to A (sf).
-- A hypothetical increase of the PD of 50% and LGD by 50%, ceteris paribus, would lead to a downgrade to A (low) (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: Kali Sirugudi, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 14 December 2017

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.

-- European RMBS Insight Methodology
-- European RMBS Insight: Spanish Addendum
-- Legal Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators

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.