DBRS Takes Rating Actions on FTA RMBS Santander 2

DBRS Ratings GmbH (DBRS) took rating actions on the notes (the Notes) issued by FTA RMBS Santander 2 (the Issuer) as follows:

-- Series A Notes confirmed at AA (sf)
-- Series B Notes upgraded to BB (sf) from BB (low) (sf)
-- Series C Notes confirmed at C (sf)

The rating on the Series A Notes addresses timely payment of interest and ultimate payment of principal on or before the final maturity date. The ratings on the Series B Notes and Series C Notes address ultimate payment of interest and ultimate payment of principal on or before the final maturity date.

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

-- Portfolio performance, in terms of delinquencies and defaults, as of the February 2019 payment date.
-- Updated portfolio default rate (PD), loss given default (LGD) and expected loss assumptions on the remaining collateral portfolio.
-- Current available credit enhancement (CE) to the Series A and B Notes to cover the expected losses at their respective rating levels.
--The Series C Notes were issued for the purpose of funding the reserve fund and are in the first-loss position and, as such, are highly likely to default. Given the characteristics of the Series C Notes as defined in the transaction documents, the default most likely would only be recognised at the maturity or early termination of the transaction.

FTA RMBS Santander 2 is a securitisation of Spanish prime residential mortgage loans originated by Banco Santander SA (Santander). The transaction follows Spanish securitisation law and closed in July 2014. An amendment to the transaction occurred in July 2015.

PORTFOLIO PERFORMANCE
The portfolio is performing within DBRS’s expectations. As of February 2019, zero- to 30-day arrears stood at 1.8%, stable from May 2018. Thirty- to 60-day and 60- to 90-day arrears were 0.4% and 0.2% compared with 0.4% and 0.3% last year. The 90+-day delinquency ratio is 0.5% of the current performing portfolio balance, down from 0.7% in May 2018. As of February 2019, the cumulative failed loans on the original balance of the portfolio stood at 1.6%, up from 1.3% as of May 2018.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the remaining collateral pool of receivables and updated its PD and LGD assumptions to 6.9% and 28.5%, respectively.

CREDIT ENHANCEMENT
The CE available to the Series A Notes has continued to increase as the transaction continues to deleverage, with the CE to the Series B Notes slightly increasing. The Series C Notes were used at closing to fund the Reserve Fund and hence do not benefit from CE. The CE consists of overcollateralisation provided by the outstanding collateral portfolios and includes the Reserve Fund. As of February 2019, CE to the Series A Notes and Series B Notes were 37.9% and 6.6%, up from 35.5% and 6.1%, respectively, as of May 2018.

The Reserve Fund was funded through the issuance of Series C Notes and is available to cover principal losses, senior fees and interest shortfalls on the Series A and Series B Notes. As of the February 2019 payment date, the Reserve Fund totalled EUR 137.5 million, below its EUR 142.4 million target level.

Santander is the Account Bank of the transaction. Based on the reference rating of Santander of A (high), one notch below its 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 exposure to the Account Bank to be consistent with the ratings assigned to the Notes, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.

The transaction’s structure was analysed in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is “Master European Structured Finance Surveillance Methodology”.

DBRS has applied the principal methodology consistently and conducted a review of the transactions 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 the transactions 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, SGFT, S.A. and loan-level data provided by 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 not 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 1 June 2018, when DBRS confirmed the rating of the Series A Notes at AA (sf), upgraded the rating of the Series B Notes to BB (low) (sf) from CCC (sf) and confirmed the rating of the Series C Notes at C (sf).

The lead analyst responsibilities for this transaction have been transferred to Ettore Grassini.

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 ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the ratings (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 6.9% and 28.5%, 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 remain at AA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Series A Notes would be expected to remain at AA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Series A Notes would be expected to remain at AA (sf).

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

Series B 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 BB (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of B (high) (sf)

The rating on the Series C Notes would not be affected by a change in either the PD or LGD.

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: Ettore Grassini, Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 9 July 2014

DBRS Ratings GmbH
Neue Mainzer Straße 75
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.

-- Interest Rate Stresses for European Structured Finance Transactions
-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- European RMBS Insight Methodology
-- European RMBS Insight: Spanish Addendum
-- Operational Risk Assessment for European Structured Finance Servicers

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.