DBRS Confirms Ratings of SC Germany Consumer 2017-1 UG (haftungsbeschränkt)

DBRS Ratings Limited (DBRS) confirmed its ratings on the Notes issued by SC Germany Consumer 2017-1 UG (haftungsbeschränkt) (the Issuer), as follows:

-- Class A Fixed-Rate Notes at AA (sf)
-- Class B Fixed-Rate Notes at A (sf)
-- Class C Fixed-Rate Notes at BBB (sf)
-- Class D Floating-Rate Notes at BB (high) (sf)

The rating on the Class A Fixed-Rate Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in November 2030. The ratings on the Class B, Class C and Class D Notes address the ultimate payment of interest and principal on or before the legal final maturity date.

The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults and losses.
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement (CE) to the notes to cover the expected losses at their respective rating levels.

The Issuer is a securitisation of consumer loans to individuals residing in Germany, originated and serviced by Santander Consumer Banks AG (SCB), a subsidiary of Santander Consumer Finance SA (SCF). The EUR 850.0 million portfolio, as of the November 2018 payment date, consisted of 21.4% secured and 78.6% unsecured loans.

PORTFOLIO PERFORMANCE AND ASSUMPTIONS
The gross cumulative default ratio was 0.6% of the original portfolio plus all subsequent portfolios as of the November 2018 payment date, 2.1% of which has been recovered; the 90+ delinquency ratio was 0.1%. DBRS has maintained its base case default rate and recovery assumptions at 6.6% and 17.5%, respectively.

REVOLVING PERIOD
The transaction included an initial 12-month revolving period, which ended on the most recent payment date in November 2018, with the Class A Notes expected to begin amortising on the December 2018 payment date.

CREDIT ENHANCEMENT
CE is provided by the subordination of the respective junior obligations and excess spread. As of the November 2018 payment date, CE to the rated notes was stable since the DBRS initial rating due to the transaction’s revolving period. CE to the Class A Notes was 16.2%; CE to the Class B Notes was 9.9%; CE to the Class C Notes was 6.0%; and CE to the Class D Notes was 4.4%.

The transaction benefits from a liquidity reserve available upon the occurrence of a Servicer Termination Event to cover senior fees, expenses, swap payments and the interest due on the Class A Notes. It has remained at its target balance since closing and has a current balance of EUR 4.3 million, reflecting its target level of 0.5% of the aggregate outstanding principal amount of the performing collateral.

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. As a mitigant, SCB in its capacity as Servicer and Originator, respectively, will 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. These reserves continue to be unfunded as no rating threshold triggers have been breached to date.

HSBC Bank plc (HSBC) acts as the account bank for the transaction. Based on the DBRS private rating of HSBC, the downgrade provisions outlined in the transaction documents and structural mitigants, DBRS considers the risk arising from the exposure to HSBC to be consistent with the rating assigned to the Notes, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.

DZ Bank AG (DZ Bank) acts as the Swap Counterparty for the transaction. DZ Bank’s Long-Term Critical Obligations Rating of AA is consistent with the First Rating Threshold as described in DBRS's "Derivative Criteria for European Structured Finance Transactions" methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “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 these ratings include monthly investor and servicer reports provided by SCB 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 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 28 November 2017, when DBRS finalised its provisional ratings on the notes.

The lead analyst responsibilities for this transaction have been transferred to Joana Seara da Costa.

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

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with the parameters used to determine the rating (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.
-- The base case PD and LGD of the current pool of loans for the Issuer are 6.6% and 82.5%, respectively.
-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating of the Class A Fixed-Rate Notes would be expected to fall to A (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Fixed-Rate 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 Class A Fixed-Rate Notes would be expected to fall to BBB (high) (sf).

Class A Fixed-Rate 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 (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 A (low) (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 (high) (sf)

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

Class C Fixed-Rate Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD, expected rating of BB (high) (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 B (sf)
-- 50% increase in PD, expected rating of B (high) (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)

Class D Floating-Rate Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of B (high) (sf)
-- 50% increase in LGD, expected rating of B (high) (sf)
-- 25% increase in PD, expected rating of 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 historic 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: Alfonso Candelas, Senior Vice President
Initial Rating Date: 20 November 2017

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.

-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Interest Rate Stresses for European Structured Finance Transactions
-- Derivative Criteria 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.