DBRS Confirms Rating of Class A Notes Issued by Silk Finance No. 4

DBRS Ratings Limited (DBRS) confirmed its rating of the Class A Asset-Backed Fixed Rate Securitisation Notes (Class A Notes) issued by Silk Finance No. 4 (the issuer) at A (high) (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 July 2018 payment date;
-- No early amortisation events have occurred;
-- The current levels of credit enhancement (CE) available to the Class A Notes to cover expected losses assumed in line with the A (high) (sf) rating level.

The rating of the Class A Notes addresses the timely payment of interest and ultimate repayment of principal by the legal maturity in January 2031.

Silk Finance No. 4 is a securitisation of vehicle loan, lease and long-term rental receivables originated by Banco Santander Consumer Portugal S.A. (BSCP) to Portuguese individuals and companies. The transaction closed in November 2015.

PORTFOLIO PERFORMANCE
As of the July 2018 payment date, 30-day to 60-day delinquencies represented 0.5% of the outstanding principal balance and 60-day to 90-day delinquencies represented 0.2%, while delinquencies greater than 90 days represented 0.2%. As a ratio of the original portfolio, gross cumulative defaults were 0.02%.

REVOLVING PERIOD
The transaction structure allows for additional portfolios to be purchased during a revolving period of three years, which is due to end in January 2019. There are concentration limits and purchase termination events in place to mitigate potential portfolio performance deterioration during the revolving period, allowing for amortisation to begin earlier than scheduled. To date, all tests have been passed.

CREDIT ENHANCEMENT
CE is provided to the Class A Notes by the subordination of the Class B Notes and the cash reserve; this has remained at 17.2% since closing.

BNP Paribas Securities Services SCA/London is the account bank for the transaction. DBRS’s private rating of BNP Paribas Securities Services SCA/London is consistent with the Minimum Institution Rating defined 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.

An asset and a cash flow 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 this rating include investor reports provided by Deutsche Bank AG, London Branch (the transaction manager), servicer reports provided by BSCP and loan-by-loan 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 11 August 2017, when DBRS confirmed its A (high) (sf) rating of the Class A Notes.

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 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, excluding sovereign stress, are 5.0% and 73.6%, respectively.

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

Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD, expected rating of A (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (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 BBB (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: Joana Seara da Costa, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 17 November 2015

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 Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Interest Rate Stresses for European Structured Finance Transactions

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.