DBRS Upgrades and Confirms Ratings of SC Germany Consumer 2016-1 UG (haftungsbeschränkt)

DBRS Ratings GmbH (DBRS) took the following rating actions of the notes issued by SC Germany Consumer 2016-1 UG (haftungsbeschränkt) (the Issuer):

-- Class A Fixed-Rate Notes confirmed at AAA (sf)
-- Class B Fixed-Rate Notes upgraded to AA (high) (sf) from A (high) (sf)
-- Class C Fixed-Rate Notes upgraded to AA (sf) from A (sf)
-- Class D Floating-Rate Notes upgraded to A (sf) from BBB (low) (sf)

The rating of 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 in September 2029. 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:
-- Portfolio performance, in terms of delinquencies, defaults and losses as of the August 2019 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 German consumer loans originated by Santander Consumer Bank AG (SCB), a subsidiary of Santander Consumer Finance SA (SCF). The EUR 229.2 million portfolio, as of the August 2019 payment date, consisted of both secured (23.7%) and unsecured (76.3%) loans. The transaction closed in September 2016 and incorporated a 12-month revolving period, which ended on the September 2017 payment date.

PORTFOLIO PERFORMANCE
As of the August 2019 payment date, loans that were 30 to 60-days delinquent represented 0.9% of the outstanding principal balance and 60 to 90-day delinquencies represented 0.3%, while delinquencies greater than 90 days represented 0.2%. Gross cumulative defaults amounted to 2.5% of the aggregate original and subsequent portfolios, 8.0% of which has been recovered to date.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base case PD and LGD assumptions to 6.2% and 87.5%, respectively, based on applicable updated performance data available from the originator and the observed recovery rate.

CREDIT ENHANCEMENT
CE is provided by the subordination of the respective junior obligations. As of the August 2019 payment date, CE to the Class A Notes increased to 49.8% from 15.2% at closing; CE to the Class B Notes increased to 31.0% from 9.5%; CE to the Class C Notes increased to 18.7% from 5.7%; and CE to the Class D Notes increased to 13.7% from 4.2%.

The transaction benefits from a liquidity reserve available under certain circumstances to cover senior fees, expenses, swap payments and the interest due on the Class A Notes. It remained at its target balance since closing and has a current balance of EUR 1.1 million, reflecting its target level of 0.5% of the aggregate outstanding principal amount of the performing collateral.

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 a monthly basis, on each payment date. As a mitigant, SCB in its capacity as servicer and originator will 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, or if certain ownership thresholds are breached. These reserves continue to be unfunded as no rating or ownership threshold triggers have been breached to date.

The Bank of New York Mellon, Frankfurt Branch (BNYM Frankfurt) acts as the account bank for the transaction. Based on the DBRS private rating of BNYM Frankfurt, 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 notes, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.

Banco Santander S.A., London Branch (Santander London) acts as the swap counterparty for the transaction. DBRS's private rating of Santander London is above the First Rating Threshold as described in DBRS's "Derivative Criteria for European Structured Finance Transactions" methodology.

The transaction structure was analysed in Intex DealMaker.

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: http://dbrs.com/research/333487/rating-sovereign-governments.pdf.

The sources of data and information used for these ratings include monthly investor reports provided by SCB 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 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 23 August 2018, when DBRS upgraded the ratings of the Class A Fixed-Rate Notes, Class B Fixed-Rate Notes, Class C Fixed-Rate Notes, Class D Floating-Rate Notes to AAA (sf), A (high) (sf), A (sf) and BBB (low) (sf), respectively.

The lead analyst responsibilities for this transaction have been transferred to Daniel Rakhamimov.

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 6.2% and 87.5%, respectively.
-- The risk Ssnsitivity 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 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, ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf).

Class A Fixed-Rate 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)
-- 50% 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 and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating AAA (sf)

Class B Fixed-Rate 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)
-- 50% increase in PD, expected rating of AA (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 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 C Fixed-Rate Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD, expected rating of A (sf)
-- 50% increase in PD, expected rating of A (low) (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 A (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 (high) (sf)

Class D Floating-Rate Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of A (low) (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 BBB (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 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: Daniel Rakhamimov, Senior Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 15 September 2016

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
-- 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.