DBRS Confirms Rating on Series 5 Notes Issued by Rayo Finance Ireland (No. 1) DAC

DBRS Ratings GmbH (DBRS) confirmed its rating on the Rayo Finance Ireland (No. 1) Designated Activity Company (the Issuer) Series 5 Notes (the Notes) at AA (low) (sf).

The confirmation reflects an annual review of the transaction and is based on the following analytical considerations:

-- The link between the transaction rating and the sovereign rating of the Kingdom of Spain (Spain; rated “A” with a Stable trend by DBRS). According to DBRS’s “Spanish 2005 Electricity Tariff” methodology, the transaction rating cannot be more than two notches above the sovereign rating.
-- No adverse change of the legal or regulatory framework or a deterioration in the performance of the public entities involved in the transaction is expected.
-- The transaction is not exposed to the credit risk of any specific entity.

The Issuer is a static securitisation of Spanish electricity tariff deficit receivables. The Notes are backed by 16.47% of the 2005 Tariff Deficit Compensation Entitlement acquired by Banco Santander SA. The transaction has a principal repayment pass-through structure and follows the standard structure under English law.

Since the December 2015 interest rate reset, the coupon on the Notes is negative. At each payment date, the Notes principal balance is reduced by the negative interest amount due. As a result, the amortisation speed of the Notes is increased. Nonetheless, this is not deemed an event of default. DBRS considers negative interest rates credit neutral to the transaction.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: “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/333487/rating-sovereign-governments.pdf.

The source of data and information used for this rating includes the monthly investor reports provided by Banco Santander SA.

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 this rating 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 30 April 2018, when DBRS upgraded its rating on the Series 5 Notes to AA (low) (sf) from A (high) (sf), following DBRS Spain sovereign upgrade.

The lead analyst responsibilities for this transaction have been transferred to Alfonso Candelas.

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 concludes that for the Notes:
-- A hypothetical downgrade of the sovereign rating of Spain by one notch, ceteris paribus, would lead to a downgrade of the Notes to A (high) (sf).
-- A hypothetical downgrade of the sovereign rating of Spain by two notches, ceteris paribus, would lead to a downgrade of the Notes to A (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 GmbH are subject to EU and US regulations only.

Lead Analyst: Alfonso Candelas, Senior Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 23 March 2012

DBRS Ratings GmbH
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60311 Frankfurt am Main Deutschland

Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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
-- Spanish 2005 Electricity Tariff
-- Interest Rate Stresses 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.