DBRS Takes Rating Actions on SC Germany Consumer 2015-1 UG (haftungsbeschränkt)

DBRS Ratings Limited (DBRS) took the following rating actions on the bonds issued by SC Germany Consumer 2015-1 UG (haftungsbeschränkt) (the Issuer):

-- Class A Fixed-Rate Notes confirmed at AAA (sf)
-- Class B Fixed-Rate Notes confirmed at AA (high) (sf)
-- Class C Fixed-Rate Notes upgraded to AA (sf) from AA (low) (sf)
-- Class D Floating-Rate Notes upgraded to A (high) (sf) from A (low) (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. The ratings on the Class B Fixed-Rate Notes, Class C Fixed-Rate Notes and Class D Floating-Rate Notes address the ultimate payment of interest and principal on or before the legal final maturity date.

The rating actions follow an annual review of the transaction and are based on the following analytical considerations:

-- The portfolio performance, in terms of level of delinquencies and cumulative net losses, as of the November 2018 payment date;
-- 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 granted to individuals residing in Germany, originated and serviced by Santander Consumer Bank AG (SCB), a subsidiary of Santander Consumer Finance SA (SCF). As of the November 2018 payment date, the EUR 409.5 million portfolio consisted of both secured (24.9%) and unsecured (75.1%) loans. The transaction closed in December 2015 and had an initial 12-month revolving period, which matured in December 2016.

PORTFOLIO PERFORMANCE AND ASSUMPTIONS
The gross cumulative default ratio, as a percentage of the original portfolio plus all subsequent portfolios, was 2.9% as of the November 2018 payment date, of which 7.9% has been recovered. The 90+ delinquency ratio was 0.3%.

DBRS has maintained its base case default rate and recovery assumptions at 6.6% and 17.5%, respectively.

CREDIT ENHANCEMENT
CE to the notes is provided primarily by the subordination of the respective junior obligations. Additionally, the cash reserve may be applied to cover principal shortfalls at Issuer default or at the final maturity. As of November 2018, CE for the Class A Notes increased to 59.8% from 17.5%; CE for the Class B Notes increased to 35.0% from 10.3%; CE for the Class C Notes increased to 25.5% from 7.5%; and CE for the Class D Notes has increased to 14.4% from 4.2% since closing. The increases have been driven partly by the high levels of prepayment seen on the securitised loans.

The transaction benefits from a cash reserve available to cover senior fees, expenses, swap payments and the interest due on the Class A Notes. It has an amortising target of 0.5% of the aggregate outstanding principal amount and currently stands at EUR 2.5 million.

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, in its capacity as Servicer and Originator, SCB 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.

DBRS notes that there is a fixed–to-floating interest rate swap related to the lowest-ranked Class D and E Notes between the Issuer and the swap counterparty, Unicredit Bank AG. The swap payments (other than termination payments when the swap counterparty is the defaulting party under the swap agreement) rank ahead of the Notes in the waterfall. DBRS has considered the relevant interest rate scenarios and the impact of regular swap payments on the cash flows in accordance with its methodologies.

The Bank of New York Mellon, Frankfurt Branch (BNY Mellon, Frankfurt Branch) acts as the transaction’s Account Bank. Based on the DBRS private rating of BNY Mellon, Frankfurt Branch, the downgrade provisions outlined in the transaction documents, and structural mitigants, DBRS considers the risk arising from the exposure to BNY Mellon, Frankfurt Branch 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 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: https://www.dbrs.com/research/333487/rating-sovereign-governments.

The sources of data and information used for these ratings 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 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 7 December 2017, when DBRS upgraded its rating to AAA (sf) from AA (sf) for Class A, to AA (high) (sf) from A (sf) for Class B, to AA (low) (sf) from BBB (high) (sf) for Class C and to A (low) from BB (high) for the Class D Notes.

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 Base Case PD and 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 assets 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 decrease to AA (high) (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 AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)

Class B Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD, 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)

Class C 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)
-- 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, expected rating of AA (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)

Class D 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)
-- 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 (high) (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 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: 26 November 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.

-- 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
-- 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.

DBRS amended this PR on 10 December 2018 to include the following missing disclosure: "At the time of the initial rating, DBRS was supplied with third-party assessments. However, this did not impact the rating analysis."