DBRS Takes Rating Actions on the Notes Issued by FT Santander Consumo 2

DBRS Ratings Limited (DBRS) took the following rating actions on the notes issued by FT Santander Consumo 2 (the Issuer):

-- Class A Notes confirmed at AA (sf)
-- Class B Notes confirmed at A (sf)
-- Class C Notes confirmed at BBB (sf)
-- Class D Notes confirmed at BB (sf)
-- Class E Notes confirmed at B (sf)
-- Class F Notes upgraded to BB (sf) from CCC (high) (sf) (together, the Notes)

The ratings on the Class A, Class B, Class C, Class D and Class E Notes address the timely payment of interest and ultimate payment of principal payable on or before the Final Maturity Date in April 2031. The rating on the Class F Notes addresses the ultimate payment of interest and principal payable on or before the Final Maturity Date.

The rating actions follow an annual review of the transaction and are based on the following analytical considerations, as described more fully below:

-- Portfolio performance, in terms of delinquencies and defaults, as of the October 2018 payment date.
-- No revolving termination events have occurred.
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the receivables.
-- Current available credit enhancement (CE) to the Notes to cover the expected losses at their respected rating levels.

The Issuer is a securitisation transaction that closed on 9 December 2016. The Notes are backed by receivables related to consumer loan contracts granted by Banco Santander S.A. (Santander) to individuals residing in Spain. Santander is also the servicer of the transaction, which is managed by Santander de Titulización S.G.F.T. S.A. It envisages a 28-month revolving period – scheduled to terminate on the April 2019 payment date (inclusive) if no termination events occur – during which Santander may offer additional receivables that the Issuer purchase with collections deriving from the amortisation of the portfolio, subject to eligibility criteria, performance targets and other provisions of the transaction documents.

PORTFOLIO PERFORMANCE
As of October 2018, loans that were two to three months in arrears represented 0.3% of the outstanding portfolio balance whereas the 90+ delinquency ratio was 1.4%, up from 1.2% in October 2017. As of October 2018, the net cumulative default ratio was 0.8%.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the outstanding portfolio of receivables. Given that the transaction is in its revolving period, the base case PD is still derived by applying the worst portfolio composition. PD and LGD assumptions after applying sovereign stresses are 8.4% and 54.3%, respectively.

The Class F Notes were issued for the purpose of funding the reserve fund, and its rating is based upon DBRS’s review of the following considerations:
-- Given the characteristics of the Class F Notes and due to good asset performance, they have been repaying during the revolving period with excess spread, as defined in the transaction documents, following a specific amortisation plan.
-- During the amortisation period, if the Class F Notes are still outstanding, they will be in the first loss position.

CREDIT ENHANCEMENT
CE to the Notes is provided by the portfolio overcollateralisation and includes the reserve fund. As of October 2018, CE to the Notes was:
-- 16.2% for the Class A Notes (up from 15.0% as at Closing)
-- 11.3% for the Class B Notes (up from 10.0%),
-- 6.4% for the Class C Notes (up from 5.0%)
-- 4.4% for the Class D Notes (up from 3.0%)
-- 2.9% for the Class E Notes (up from 1.5%)

The CE increase is the result of the overcollateralisation derived from some excess spread being used during the revolving period to buy additional receivables.

The reserve fund, which is currently at its target level of EUR 15.0 million (1.5% of the outstanding balance of the Class A to Class E Notes), is available to pay senior fees, expenses, missed interest on the Class A to Class E Notes, and principal shortfall on the Class A to Class E Notes.

Santander acts as the account bank for the transaction. Based on the reference rating of Santander at A (high), one notch below its DBRS Long-Term Critical Obligations Rating of AA (low), the downgrade provisions outlined in the transaction documents, and structural mitigants, 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 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.

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/333487/rating-sovereign-governments.pdf.

The sources of data and information used for these ratings include investors reports provided by Santander de Titulización S.G.F.T. S.A.and loan-by-loan level 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 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 6 December 2017, when the ratings of the Class A, the Class B, the Class C, the Class D, the Class E and the Class F notes were confirmed at AA (sf), A (sf), BBB (sf), BB (sf), B (sf) and CCC (high) (sf), respectively.

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 rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):

-- DBRS expected a lifetime base-case PD, LGD and expected losses 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 receivables for the Issuer are 8.4% and 54.3%, respectively, (including sovereign stress) for the Notes.
-- 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 Notes would be expected to be downgraded to A (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A Notes would be expected to be downgraded to A (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to be downgraded to BBB (sf).

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

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

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

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

Class E Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of CCC (high) (sf)
-- 50% increase in LGD, expected rating of CCC (sf)
-- 25% increase in PD, expected rating of CCC (high) (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)

Class F Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BB (sf)
-- 50% increase in LGD, expected rating of BB (sf)
-- 25% increase in PD, expected rating of BB (sf)
-- 50% increase in PD, expected rating of BB (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of B (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of B (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of CCC (high) (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: Ilaria Maschietto, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 9 December 2016

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

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.