DBRS Upgrades its Rating on SC Germany Consumer 2014-1 UG (haftungsbeschränkt)

DBRS Ratings Limited (DBRS) upgraded its rating on the Class A Notes issued by SC Germany Consumer 2014-1 UG (haftungsbeschränkt) (the Issuer) to AAA (sf) from AA (sf).

The rating action follows an annual review of the transaction and is based on the following analytical considerations:

-- The portfolio performance, in terms of level of delinquencies and cumulative net losses, as of the March 2018 payment date;
-- The increased levels of credit enhancement (CE) available to the Class A Notes to cover expected losses assumed at the AAA (sf) rating level.

The rating on the Class A Notes addresses the timely payment of interest and the ultimate payment of principal payable on or before the Final Legal Maturity Date in February 2028.

SC Germany Consumer 2014-1 UG (haftungsbeschränkt) is a securitisation of German auto loans originated by Santander Consumer Bank AG (SCB), a subsidiary of Santander Consumer Finance SA (SCF). The EUR 410.4 million portfolio, as of the March 2018 payment date, consisted of both secured (25.4% of the outstanding portfolio balance) and unsecured (74.6%) loans.

The transaction had an initial 36-month revolving period, which was due to mature in March 2017. However, the Seller exercised a Replenishment Termination Option, as outlined in the transaction documents, and the revolving period terminated in May 2016.

PORTFOLIO PERFORMANCE
As of the March 2018 payment date, 30-day to 60-day delinquencies represented 1.2% of the outstanding principal balance and 60-day to 90-day delinquencies represented 0.6%, while delinquencies greater than 90 days represented 0.2%. The gross cumulative defaults as a ratio of the original portfolio plus all additional receivables were 3.5%, of which 11.2% have been recovered.

CREDIT ENHANCEMENT
CE is provided by the subordination of the Class B Notes. CE for the Class A Notes increased to 35.3% in January 2018, from 10.7% at closing. A reserve was funded at closing and provides liquidity support to the Class A and Class B Notes. The reserve fund is currently at its target level of EUR 13.5 million – equal to 1.0% of the initial balance of the Class A and Class B Notes.

The deal is exposed to potential commingling and set-off risks as debtors may open accounts with the Originator and collections are swept to the Account Bank on each monthly payment date. To mitigate this risk, SCB, in its capacity as Servicer and Originator, must fund separate Commingling and Set-Off Reserves, if the DBRS rating of SCB’s parent company – SCF – falls below specific thresholds as defined in the legal documentation. However, these reserves continue to be unfunded as no rating threshold triggers have been breached to date.

The Bank of New York Mellon, Frankfurt Branch acts as the Account Bank for the transaction. DBRS’s private rating of The Bank of New York Mellon, Frankfurt Branch 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 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 “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 monthly investor reports provided by SCB.

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

At the time of the initial rating, DBRS was not 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 14 March 2017, when DBRS upgraded its rating on the Class A Notes to AA (sf).

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

To assess the impact of the changing the transaction parameters on this rating, 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 receivables are 6.6% and 82.5%, respectively.

For example, if the LGD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), ceteris paribus. If the PD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), ceteris paribus.

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)
-- 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, 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: Joana Seara da Costa, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 20 March 2014

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
-- 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.