DBRS Upgrades and Confirms Ratings on FT Santander Consumer Spain Auto 2016-1

DBRS Ratings Limited (DBRS) took the following rating actions on the notes issued by FT Santander Consumer Spain Auto 2016-1 (the Issuer):

-- Series A confirmed at AA (sf)
-- Series B confirmed at A (high) (sf)
-- Series C confirmed at BBB (high) (sf)
-- Series D upgraded to BB (high) (sf) from BB (sf)

The rating on the Series A notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in April 2032. The ratings on the Series B, Series C and Series D 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:

-- 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.
-- No revolving termination events have occurred.
-- Current available credit enhancement (CE) to the notes to cover the expected losses at their respective rating levels.

The Issuer is a securitisation of Spanish auto loan receivables granted by Santander Consumer E.F.C., S.A. (SC), a subsidiary of Santander Consumer Finance, S.A. (SCF). As of the January 2019 payment date, the EUR 765.0 million portfolio consisted of loans provided to both individual (96.4%) and commercial (3.6%) borrowers, used to finance the purchase of both new (78.8%) and used (21.2%) vehicles. The transaction closed in March 2016 and includes a 40-month revolving period, with the Series A notes scheduled to begin amortising with the August 2019 payment date.

PORTFOLIO PERFORMANCE
As of the January 2019 payment date, one- to two-month and two- to three-month delinquencies represented 0.6% and 0.5% of the portfolio balance, respectively, while loans more than three months delinquent represented 0.6%. The cumulative default ratio was 0.4%.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 9.3% and 50.5%, respectively.

REVOLVING PERIOD
As of the January 2019 payment date, no performance triggers which would have caused the revolving period to mature early have been breached. To further mitigate the deterioration of the pool, the transaction permits certain concentration limits on the additional portfolios purchased on each payment date. The “worst-case” portfolio composition was considered in the cash flow analysis.

CREDIT ENHANCEMENT
As of the January 2019 payment date, CE to the Series A notes was 17.0%, remaining stable since DBRS’s initial rating due to the transaction’s revolving period. CE to the Series B notes remained at 13.0%, to the Series C notes at 7.5% and to the Series D notes at 4.5%, all remaining unchanged since the DBRS initial rating. CE is provided by the subordination of the respective junior obligations and the cash reserve.

The transaction benefits from a non-amortising cash reserve of EUR 15.3 million, funded by the proceeds from the Series F notes issuance, available to cover senior expenses, interest and principal payments due on the Series A to Series E notes.

To mitigate any disruptions in payments due to the replacement of the Servicer or the risk that the Servicer fails to transfer the collections to the Issuer, the transaction documents envisage the provision of liquidity and commingling reserves. These were unfunded at closing and will only be funded if the DBRS rating of SC’s parent company, SCF, falls below specific thresholds as defined in the legal documentation, or ownership thresholds are crossed. These reserves continue to be unfunded, as none of the rating triggers have been breached to date.

SCF acts as the Account Bank for the transaction. Based on DBRS’s private rating of SCF, the downgrade provisions outlined in the transaction documents and other mitigating factors inherent in the transaction structure, DBRS considers the risk arising from the exposure to the Account Bank to be consistent with the rating assigned to the Series A 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 investor reports provided by Santander de Titulización, S.G.F.T., S.A. (the Management Company) 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 ratings, 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 22 February 2018, when DBRS confirmed the rating of the Series A notes and upgraded the ratings of the Series B, Series C, Series D notes to A (high) (sf), BBB (high) (sf) and BB (sf), respectively.

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 9.3% and 50.5%, 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 Series A notes would be expected to fall to A (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 (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Series A would be expected to fall to BBB (low) (sf).

Series A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 50% 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 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 (low) (sf)

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

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

Series 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 B (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating below B (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating below B (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating below B (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: 10 March 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
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Rating European Consumer and Commercial Asset-Backed Securitisations

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.