DBRS Takes Rating Actions on FT Santander Consumer Spain Auto 2016-1

DBRS Ratings Limited (DBRS) took the following rating actions on the notes issued by FT Santander Consumer Spain Auto 2016-1 (the Issuer):

-- Series A confirmed at AA (sf)
-- Series B upgraded to A (high) (sf) from A (sf)
-- Series C upgraded to BBB (high) (sf) from BBB (sf)
-- Series D upgraded to BB (sf) from BB (low) (sf)

The above-mentioned rating actions follow an annual review of the transaction and are based on the following analytical considerations, as described more fully below:

-- The overall portfolio performance as of the January 2018 payment date, in particular with regard to low levels of cumulative net loss and delinquencies.
-- The current levels of credit enhancement available to the notes to cover expected losses assumed in line with their respective rating levels.
-- The transaction has not experienced any events terminating its revolving period.

The rating of the Series A notes addresses the timely payment of interest and the ultimate repayment of principal on or before the Legal Maturity Date in April 2032. The ratings of the Series B, Series C and Series D notes address the ultimate payment of interest and repayment of principal on or before the Legal Maturity Date in April 2032.

FT Santander Consumer Auto Spain 2016-1 is a securitisation consisting of Spanish auto loan receivables granted by Santander Consumer E.F.C., S.A. (SC), a subsidiary of Santander Consumer Finance, S.A. (SCF). The EUR 765.0 million portfolio, as of the January 2018 payment date, consists of loans for both the purchase of new (78.7%) and used (21.3%) vehicles, underwritten to mostly retail (96.0%) and some commercial (4.0%) clients.

The transaction closed on 16 March 2016 and envisaged an initial 40-month revolving period, due to mature on the July 2019 payment date.

PORTFOLIO PERFORMANCE
As of the January 2018 payment date, 30-day to 60-day arrears were 0.7% of the outstanding principal balance and 60-day to 90-day arrears were 0.4%, while arrears greater than 90 days were 0.6%. Loans more than 12 months in arrears or considered doubtful in their recovery were 0.1%. DBRS’s current analysis gives credit to realised portfolio performance.

CREDIT ENHANCEMENT
Credit Enhancement (CE) is initially provided by the subordination of the respective junior obligations. As of January 2018, CE for the Series A notes has remained at 15.0% since closing, CE for the Series B notes has remained at 11.0% since closing, CE for the Series C notes has remained at 5.5% since closing and CE for the Series D notes has remained at 2.5% since closing.

REVOLVING PERIOD
As of the January 2018 payment date, no performance triggers have been breached, causing the revolving period to mature early. To further mitigate the deterioration of the pool, the transaction permits certain concentration limits on the additional portfolios purchased on each payment date. The “worst-case” portfolio composition was considered in the cash flow analysis.

The non-amortising cash reserve was funded from the issuance of the Series F notes. It is available to cover senior fees, expenses and the interest due on the Series A-E notes and has remained at its target of EUR 15.3 million since closing.

To mitigate any disruptions in payments due to the replacement of the servicer or the risk that the Servicer fails to transfer the collections to the Issuer, the transaction documents envisage the provision of liquidity and commingling reserves. These were unfunded at closing and will only be funded if the DBRS rating of SC’s parent company (SCF) falls below specific thresholds as defined in the legal documentation. These reserves continue to be unfunded, as none of the rating triggers have been breached to date. Set-off risk is considered minimal in this jurisdiction.

Since both the receivables and the notes pay a fixed rate of interest, there is a natural hedge inherent in the transaction.

SCF acts as the Account Bank for the transaction. DBRS’s private rating of SCF complies with the minimum institution rating given the ratings assigned to the 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 to the ratings 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.

An asset and a cashflow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.

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 “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 these ratings include quarterly investor reports provided by Santander de Titulización S.G.F.T., S.A. – the managing company.

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 these ratings 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 22 February 2017, when DBRS confirmed its ratings of AA (sf), A (sf), BBB (sf), BB (low) (sf) on the Series A, Series B, Series C and Series D notes, respectively.

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 these ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “base case”):

-- DBRS expected a base case probability of default (PD) and loss given default (LGD) for the portfolio 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 of the current pool of assets of receivables, excluding sovereign stress, are 8.9% and 50.1%, respectively.

For example, if the LGD increases by 50%, the rating of the Series A notes would be expected to decrease to A (sf), ceteris paribus. If the PD increases by 50%, the rating of the Series A notes would be expected to decrease to A (low) (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating of the Series A notes would be expected to decrease to BBB (low) (sf), ceteris paribus.

Series A notes risk sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD, expected rating of A (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf)

Series B notes risk sensitivity:
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD, expected rating of A (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD, expected rating of BBB (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (sf)

Series C notes risk sensitivity:
-- 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in LGD, expected rating of BB (sf)
-- 25% increase in PD, expected rating of BBB (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of B (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of below B (sf)
-- 50% increase in PD, expected rating of B (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of below B (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of below B (sf)

Series D notes risk sensitivity:
-- 25% increase in LGD, expected rating of below B (sf)
-- 50% increase in LGD, expected rating of below B (sf)
-- 25% increase in PD, expected rating of below B (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of below B (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of below B (sf)
-- 50% increase in PD, expected rating of below B (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of below B (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of below B (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: Joana Seara da Costa, Assistant Vice President
Rating Committee Chair: Gareth Levington, Manging Director
Initial Rating Date: 10 March 2016

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960

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
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Rating European Consumer and Commercial Asset-Backed 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.

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