DBRS Takes Rating Actions on Five Santander Spanish RMBS Transactions

DBRS Ratings Limited (DBRS) took the following rating actions on the Notes issued by five Santander Spanish residential mortgage-backed securities (RMBS) transactions:

FTA RMBS Santander 1 (SAN1):
-- Series A Notes maintained at AA (sf) Under Review with Positive Implications (UR-Pos.)
-- Series B Notes maintained at CCC (sf) UR-Pos.
-- Series C Notes confirmed at C (sf)

FTA RMBS Santander 2 (SAN2):
-- Series A Notes confirmed at AA (sf)
-- Series B Notes upgraded to BB (low) (sf) from CCC (sf)
-- Series C Notes confirmed at C (sf)

FTA RMBS Santander 3 (SAN3):
-- Series A Notes maintained at AA (sf) UR-Pos.
-- Series B Notes maintained at CCC (sf) UR-Pos.
-- Series C Notes confirmed at C (sf)

FT RMBS Santander 4 (SAN4):
-- Series A Notes maintained at A (high) (sf) UR-Pos.
-- Series B Notes maintained at CCC (sf) UR-Pos.
-- Series C Notes confirmed at C (sf)

FT RMBS Santander 5 (SAN5):
-- Series A Notes maintained at A (high) (sf) UR-Pos.
-- Series B Notes maintained at CCC (sf) UR-Pos.
-- Series C Notes confirmed at C (sf)

For the five transactions, the ratings on the Series A Notes address the timely payment of interest and ultimate payment of principal on or before the respective final maturity dates. The ratings on the Series B Notes and Series C Notes address the ultimate payment of interest and principal on or before the respective final maturity dates.

The Series A Notes and Series B Notes of SAN1, SAN3, SAN4 and SAN5 were originally placed UR-Pos. on 30 April 2018, following the upgrade of the Kingdom of Spain’s Long-Term Foreign and Local Currency – Issuer Rating to “A” from A (low) (https://www.dbrs.com/research/326766/dbrs-takes-rating-actions-on-21-eu-structured-finance-transactions-following-spain-sovereign-rating-upgrade). The Series A Notes and Series B Notes of SAN1, SAN3, SAN4 and SAN5 continue to be placed UR-Pos. pending DBRS’s analysis of the recent performance of the Spanish real estate market.

The rating actions follow an annual review of the transactions and are based on the following analytical considerations:
-- Portfolio performances, in terms of delinquencies and defaults, as of the latest payment date for each transaction;
-- Updated portfolio default rates (PD), loss given defaults (LGD) and expected loss assumptions on the remaining collateral portfolios;
-- Current available credit enhancement (CE) to the rated Notes to cover the expected losses at the respective rating levels.

All five transactions are securitisations of Spanish first-lien mortgage loans. The pools of SAN1 and SAN2 are originated and serviced by Banco Santander S.A. (Santander). The pools of SAN3 and SAN4 are originated by Santander and Banco de Crédito Español (Banesto, now fully integrated into Santander) and serviced by Santander. The pool of SAN5 is originated by Santander, Banesto and Banco Banif S.A.U., and serviced by Santander. As of the March 2018 payment date, the SAN1 portfolio totaled 927.4 million with a pool factor of 71.3%. As of the May 2018 payment date, the SAN2 portfolio totaled 2,230.5 million with a pool factor of 74.3% and the SAN3 portfolio totaled 4,892.2 million with a pool factor of 75.3%. As of the March 2018 payment date, the SAN4 portfolio totaled 2,341.0 million with a pool factor of 79.4%. As of the April 2018 payment date, the SAN5 portfolio totaled 1,058.0 million with a pool factor of 83.0%.

PORTFOLIO PERFORMANCE
The portfolios are performing within DBRS’s expectations. The delinquent loans have decreased in all five transactions, while defaulted loans have slightly increased over the past year. The 90+ delinquency ratios stood at 1.9%, 0.7%, 0.9%, 1.2% and 1.2% of the outstanding collateral pool of SAN1, SAN2, SAN3, SAN4 and SAN5, respectively, as of the latest payment dates. The cumulative defaulted ratios were 3.2%, 1.3%, 2.0%, 1.3% and 1.0% computed on the original portfolio balances of SAN1, SAN2, SAN3, SAN4 and SAN5, respectively.

PORTFOLIO ASSUMPTIONS
DBRS conducted loan-by-loan analyses on the remaining collateral pools of receivables and updated its PD and LGD assumptions as follows:
-- In SAN1, the base case PD and LGD are 15.4% and 39.2%, respectively;
-- In SAN2, the base case PD and LGD are 6.8% and 34.0%, respectively;
-- In SAN3, the base case PD and LGD are 9.8% and 40.7%, respectively;
-- In SAN4, the base case PD and LGD are 11.0% and 42.1%, respectively;
-- In SAN5, the base case PD and LGD are 13.7% and 39.3%, respectively.

CREDIT ENHANCEMENT
The CEs available to the rated Series A Notes have continued to increase as the transactions continue to deleverage with the CEs to the rated Series B Notes remaining fairly stable. The rated Series C Notes funded the Reserve Funds and hence do not benefit from CE. The CEs consist of the overcollateralisation provided by the outstanding collateral portfolios and include the Reserve Funds in all transactions. The CEs were as follows:
-- In SAN1, the Series A and Series B Notes CEs were 42.3% and 3.5% as of the March 2018 payment date, compared to 39.3% and 3.7% as of the March 2017 payment date;
-- In SAN2, the Series A and Series B Notes CEs were 35.5% and 6.1% as of the May 2018 payment date, compared to 32.5% and 5.6% as of the May 2017 payment date;
-- In SAN3, the Series A and Series B Notes CEs were 37.4% and 5.3% as of the May 2018 payment date, compared to 34.6% and 5.1% as of the May 2017 payment date;
-- In SAN4, the Series A and Series B Notes CEs were 30.5% and 5.3% as of the March 2018 payment date, compared to 28.7% and 5.6% as of the March 2017 payment date;
-- In SAN5, the Series A and Series B Notes CEs were 30.1% and 5.4% as of the April 2018 payment date, compared to 28.1% and 5.5% as of the April 2017 payment date.

The Reserve Funds were funded through the issuances of junior series and are available to cover principal losses, senior fees and interest shortfall on the rated Notes. As of the latest payment dates, the reserves were at EUR 32.9 million in SAN1, EUR 135.9 million in SAN2, EUR 259.8 million in SAN3, EUR 123.8 million in SAN4 and EUR 57.4 million in SAN5. None of the Reserve Funds are at target level.

Santander acts as the account bank for all five transactions. The DBRS public ratings on the account bank are consistent with the Minimum Institution Rating, given the ratings assigned to the Series A Notes of each transaction, 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 transactions in accordance with the principal methodology.

Some ratings are UR-Pos., DBRS is undertaking a review and will remove these ratings from this status as soon as it is appropriate.

A review of the transactions legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

Other methodologies referenced in the transactions 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 investor reports provided by Santander de Titulización, SGFT, S.A. and loan-level data provided by 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 ratings of SAN1, SAN2 and SAN3, DBRS was not supplied with third-party assessments. At the time of the initial ratings of SAN4 and SAN5, DBRS was supplied with third-party assessments. However, this did not impact the rating analyses.

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.

Prior to the ratings being placed UR-Pos. on 30 April 2018, the last rating actions on these transactions took place on 2 June 2017, when DBRS confirmed the respective ratings on the Series A Notes, Series B Notes and Series C Notes of SAN1 at AA (sf), CCC (sf) and C (sf), confirmed the respective ratings on the Series A Notes, Series B Notes and Series C Notes of SAN2 at AA (sf), CCC (sf) and C (sf), confirmed the respective ratings on the Series A Notes, Series B Notes and Series C Notes of SAN3 at AA (sf), CCC (sf) and C (sf), confirmed the respective ratings on the Series A Notes, Series B Notes and Series C Notes of SAN4 at A (high) (sf), CCC (sf) and C (sf), upgraded the rating on the Series A Notes to A (high) (sf) and confirmed the respective ratings on the Series B Notes and Series C Notes of SAN5 CCC (sf) and C (sf).

The lead analyst responsibilities for the transaction SAN2 have been transferred to Ilaria Maschietto.

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 ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the ratings (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.

-- In SAN1, the base case PD and LGD of the pool of mortgages are 15.4% and 39.2%, respectively. At the AA (sf) rating level, the corresponding PD is 38.1% and the LGD is 53.2%.
-- In SAN2, the base case PD and LGD of the pool of mortgages are 6.8% and 34.0%, respectively. At the AA (sf) rating level, the corresponding PD is 23.6% and the LGD is 48.9%. At the BB (low) (sf) rating level, the corresponding PD is 9.0% and the LGD is 35.9%.
-- In SAN3, the base case PD and LGD of the pool of mortgages are 9.8% and 40.7%, respectively. At the AA (sf) rating level, the corresponding PD is 28.1% and the LGD is 54.8%.
-- In SAN4, the base case PD and LGD of the pool of mortgages are 11.0% and 42.1%, respectively. At the A (high) (sf) rating level, the corresponding PD is 27.0% and the LGD is 53.2%.
-- In SAN5, the base case PD and LGD of the pool of mortgages are 13.7% and 39.3%, respectively. At the A (high) (sf) rating level, the corresponding PD is 31.4% and the LGD is 50.5%.

-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. Considering SAN1 as an example, if the LGD increases by 50%, the rating of the Series A Notes would be expected to remain at AA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Series A Notes would be expected to fall to A (low) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Series A Notes would be expected to fall to BBB (high) (sf).

SAN1: Series A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of A (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (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 (high) (sf)

SAN2: Series A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)

SAN2: Series B Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BB (low) (sf)
-- 50% increase in LGD, expected rating of BB (low) (sf)
-- 25% increase in PD, expected rating of BB (low) (sf)
-- 50% increase in PD, expected rating of B (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of B (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of B (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of B (sf)

SAN3: Series A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)

SAN4: Series A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of A (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)

SAN5: Series A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, 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 (high) (sf)

The ratings on the Series B Notes of SAN1, SAN3, SAN4 and SAN5 would not be affected by a change in either the PD or LGD.

The ratings on the Series C Notes would not be affected by a change in either the PD or LGD.

Some of these ratings are UR-Pos. Generally, the conditions that lead to the assignment of reviews are resolved within a 90-day period.

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: Ilaria Maschietto, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
SAN1 Initial Rating Date: 18 June 2014
SAN2 Initial Rating Date: 9 July 2014
SAN3 Initial Rating Date: 17 November 2014
SAN4 Initial Rating Date: 24 June 2015
SAN5 Initial Rating Date: 10 December 2015

DBRS Ratings Limited
20 Fenchurch Street
31st Floor
London
EC3M 3BY
United Kingdom

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.

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

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.

The press release was amended on 12 July 2018 to include the missing disclosure: "DBRS did not rely upon third-party due diligence in order to conduct its analysis."