DBRS Confirms and Upgrades Ratings on Four Santander Spanish RMBS Transactions and Removes UR-Pos.

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

FTA RMBS Santander 1 (SAN1):
-- Series A Notes upgraded to AAA (sf) from AA (sf)
-- Series B Notes confirmed at CCC (sf)
-- Series C Notes confirmed at C (sf)

FTA RMBS Santander 3 (SAN3):
-- Series A Notes upgraded to AAA (sf) from AA (sf)
-- Series B Notes upgraded to B (low) (sf) from CCC (sf)
-- Series C Notes confirmed at C (sf)

FT RMBS Santander 4 (SAN4):
-- Series A Notes upgraded to AA (sf) from A (high) (sf)
-- Series B Notes upgraded to B (low) (sf) from CCC (sf).
-- Series C Notes confirmed at C (sf)

FT RMBS Santander 5 (SAN5):
-- Series A Notes upgraded to AA (sf) from A (high) (sf)
-- Series B Notes confirmed at CCC (sf)
-- Series C Notes confirmed at C (sf)

The ratings on the Series A Notes in the four transactions 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 and Series C Notes address the ultimate payment of interest and principal on or before the respective final maturity dates.

Additionally, DBRS removed the Under Review with Positive Implications (UR-Pos.) status on the Series A and Series B Notes from the four transactions.

The rating actions are the result of an annual review of the transaction following publication of an update to the “European RMBS Insight: Spanish Addendum” on 2 October 2018, where DBRS updated its house price indexation and market value decline rates to reflect data through the third quarter of 2017.

The ratings on 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). For additional information on the upgrade, please see DBRS’s press release entitled “DBRS Upgrades the Kingdom of Spain to A, Stable Trend”, published on 6 April 2018. The UR-Pos. status of the notes was extended following the publication of the “European RMBS Insight: Spanish Addendum - Request for Comment” on 24 July 2018.

The rating actions 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 their respective rating levels.

All four transactions are securitisations of Spanish first-lien mortgage loans. The pool of SAN1 is 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 September 2018 payment date, the SAN1 portfolio totalled EUR 887.4 million with a pool factor of 68.3%. As of the August 2018 payment date, the SAN3 portfolio totalled EUR 4,785.7 million with a pool factor of 73.6%. As of the September 2018 payment date, the SAN4 portfolio totalled EUR 2,244.7 million with a pool factor of 76.1%. As of the July 2018 payment date, the SAN5 portfolio totalled EUR 1,035.4 million with a pool factor of 81.2%.

PORTFOLIO PERFORMANCE
The portfolios are performing within DBRS’s expectations. The delinquent and defaulted loans have remained fairly stable since the last annual reviews in all four transactions. The 90+ delinquency ratios stood at 1.5 %, 0.8%, 1.0% and 1.0% of the outstanding collateral pool of SAN1, SAN3, SAN4 and SAN5, respectively, as of the latest payment dates. The cumulative defaulted ratios were 3.4%, 2.1%, 1.6% and 1.0% computed on the original portfolio balances of SAN1, 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 14.6% and 36.2%, respectively;
-- In SAN3, the base case PD and LGD are 9.3% and 36.9%, respectively;
-- In SAN4, the base case PD and LGD are 10.5% and 38.9%, respectively;
-- In SAN5, the base case PD and LGD are 12.8% and 34.9%, respectively.

CREDIT ENHANCEMENT
The CEs available to the Series A Notes have continued to increase as the transactions continue to deleverage with the CEs to the Series B Notes remaining fairly stable. The Series C Notes were issued to fund the Reserve Funds and are in a first loss position supported only by available excess spread. Given the characteristics of the Series C Notes as defined in the transaction documents, the default would most likely be recognised at maturity or following an early termination of the transaction.

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 44.2% and 3.7% as of the September 2018 payment date.
-- In SAN3, the Series A and Series B Notes CEs were 38.2% and 5.4% as of the August 2018 payment date.
-- In SAN4, the Series A and Series B Notes CEs were 31.7% and 5.4% as of the September 2018 payment date.
-- In SAN5, the Series A and Series B Notes CEs were 30.7% and 5.4% as of the July 2018 payment date.

The reserve funds were funded through the issuances of the junior series and are available to cover principal losses, senior fees and interest shortfalls on the rated Notes. As of the latest payment dates, the reserves were at EUR 33.2 million in SAN1, EUR 259.9 million in SAN3, EUR 120.8 million in SAN4 and EUR 56.2 million in SAN5. None of the reserve funds are at their target level.

Santander acts as the account bank for all four transactions. Based on the reference rating of Santander at A (high), one notch below DBRS Long-Term Critical Obligations Rating of AA (low), and the downgrade provisions outlined in the transaction documents, DBRS considers the risk arising from the exposure to Santander to be consistent with 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 transactions in accordance with the principal methodology.

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.

At the time of the initial ratings of SAN1 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.

The last rating actions on these transactions took place on 27 July 2017, when DBRS extended the UR-Pos. status on the respective AA (sf) and CCC (sf) ratings of the Series A Notes and Series B Notes of SAN1, on the respective AA (sf) and CCC (sf) ratings of the Series A Notes and Series B Notes of SAN3, on the respective A (high) (sf) and CCC (sf) ratings of the Series A Notes and Series B Notes SAN4, and on the respective A (high) (sf) and CCC (sf) ratings of the Series A Notes and Series B Notes of SAN5.

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 pools based on a review of the current assets.
Adverse changes to asset performances 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 14.6% and 36.2%, respectively. At the AAA (sf) rating level, the corresponding PD is 40.3% and the LGD is 55.2%.
-- In SAN3, the base case PD and LGD of the pool of mortgages are 9.3% and 36.9%, respectively. At the AA (sf) rating level, the corresponding PD is 30.4% and the LGD is 56.4%.
-- In SAN4, the base case PD and LGD of the pool of mortgages are 10.5% and 38.9%, respectively. At the AA (sf) rating level, the corresponding PD is 29.6% and the LGD is 53.9%.
-- In SAN5, the base case PD and LGD of the pool of mortgages are 12.8% and 34.9%, respectively. At the A (high) (sf) rating level, the corresponding PD is 33.5% and the LGD is 50.2%.

-- 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 AAA (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 AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of A (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (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)

SAN1: Series B Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of below CCC (sf)
-- 50% increase in LGD, expected rating of below CCC (sf)
-- 25% increase in PD, expected rating of below CCC (sf)
-- 50% increase in PD, expected rating of below CCC (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of below CCC (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of below CCC (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of below CCC (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of below CCC (sf)

SAN3: Series 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)
-- 50% increase in PD, expected rating of AA (high) (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 AA (high) (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)

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

SAN4: 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 A (high) (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 (low) (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)

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

SAN5: 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 (low) (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 A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)

SAN5: Series B Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of CCC (sf)
-- 50% increase in LGD, expected rating of CCC (sf)
-- 25% increase in PD, expected rating of CCC (sf)
-- 50% increase in PD, expected rating of CCC (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of CCC (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of CCC (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of CCC (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of below CCC (sf)

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

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, Assistant Vice President
Rating Committee Chair: Gareth Levington, Managing Director
SAN1 Initial Rating Date: 18 June 2014
SAN3 Initial Rating Date: 17 November 2014
SAN4 Initial Rating Date: 24 June 2015
SAN5 Initial Rating Date: 10 December 2015

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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.