DBRS Morningstar Confirms Ratings of FT RMBS Prado II and FT RMBS Prado IV

DBRS Ratings GmbH (DBRS Morningstar) confirmed its AAA (sf) ratings on the Class A Notes issued by FT RMBS Prado II (Prado II) and FT RMBS Prado IV (Prado IV), (together the Issuers).

The ratings address the timely payment of interest and ultimate payment of principal by the legal final maturity dates in 2056.

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

-- Portfolio performances, in terms of delinquencies, defaults, and losses as of the December 2019 payment dates.
-- Portfolio default rates (PD), loss given defaults (LGD), and expected loss assumptions on the remaining receivables.
-- Current available credit enhancements to the Class A Notes to cover the expected losses at the AAA (sf) rating level.

Both Issuers are securitisations of residential mortgage loans secured by first-lien mortgages originated and serviced by Unión de Créditos Inmobiliarios S.A., E.F.C. (UCI or the Seller) in Spain. The Issuers used the proceeds of the notes (and a subordinated loan in case of Prado II) to fund the purchase of the mortgage portfolios from the Seller.

PORTFOLIO PERFORMANCE AND ASSUMPTIONS
-- For Prado II, the performance of the collateral portfolio is within DBRS Morningstar’s expectations. As of December 2019, loans more than 90 days in arrears represented 0.5% of the outstanding performing collateral balance. There have been no defaulted receivables reported since the transaction closed in March 2016.
-- For Prado IV, the performance of the collateral portfolio is within DBRS Morningstar’s expectations. As of December 2019, loans more than 90 days in arrears represented 0.3% of the outstanding performing collateral balance. Only 0.2% of defaulted receivables were reported since the transaction closed in April 2017.

DBRS Morningstar conducted a loan-by-loan analysis of the remaining pools of both Issuers and updated its PD and LGD assumptions to 5.7% and 12.5%, respectively, for Prado II, and to 7.9% and 25.2%, respectively for Prado IV.

CREDIT ENHANCEMENTS
-- In Prado II, the credit enhancement to the Class A Notes consisting of subordination has increased to 36.3% as of December 2019, up from 32.02% at last year’s annual review.
-- In Prado IV, the credit enhancement to the Class A Notes consisting of subordination has increased to 25.4% as of December 2019, up from 23.79% at last year’s annual review.

Both transactions benefit from amortising reserve funds (RF), which are available to cover senior expenses and interests of the Class A Notes. The RFs are at their target levels of EUR 12.2 million and EUR 8.4 million for Prado II and Prado IV, respectively, as of December 2019. Both RFs are subject to a floor of 1% of the initial portfolio balances.

BNP Paribas Securities Services SA, Spanish branch is the account bank for the Prado II transaction. Based on DBRS Morningstar’s private rating of the account bank, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the AAA (sf) rating assigned to the Class A Notes, as described in DBRS Morningstar 's "Legal Criteria for European Structured Finance Transactions" methodology.

Banco Santander SA (Santander) acts as the account bank for the Prado IV transaction. Based on the account bank reference rating of Santander at A (high), which is one notch below the DBRS Morningstar Long-Term Critical Obligations Rating (COR) of AA (low), the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the AAA (sf) rating assigned to the Class A Notes, as described in DBRS Morningstar 's "Legal Criteria for European Structured Finance Transactions" methodology.

Santander also acts as the swap counterparty for the Prado IV transaction. DBRS Morningstar’s COR of Santander is above the First Rating Threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the structures of both transactions 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 Morningstar has applied the principal methodology consistently and conducted a review of the transactions in accordance with the principal methodology.

A review of the transactions’ legal documents was not conducted as the legal documents have remained unchanged since the most recent rating actions.

Other methodologies referenced in these 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 “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include reports from the Management Company, Santander de Titulización, SGFT, S.A., and loan-level data from the European DataWarehouse GmbH.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial ratings, DBRS Morningstar was supplied with third-party assessments for both transactions. However, this did not impact the rating analysis.

DBRS Morningstar considers the data and information available to it for the purpose of providing these ratings to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating processes.

The last rating actions on both transactions took place on 14 February 2019, when DBRS Morningstar confirmed its ratings on the Class A Notes of both transactions at AAA (sf).
The lead analyst responsibilities for both transactions have been transferred to Shalva Beshia.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies is available at www.dbrs.com.

To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the ratings (the Base Case):

-- DBRS Morningstar expected a lifetime base case PD and LGD for the pools 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 pools of loans for the Issuers are 5.7% and 12.5%, respectively, for Prado II, and 7.9% and 25.2%, respectively, for Prado IV.
-- The risk sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption in both transactions. For example, in Prado II, if the LGD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (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 still be expected to remain at AAA (sf).

Prado II Class A Notes Risk Sensitivity:
-- 25% increase of the PD, expected rating of AAA (sf)
-- 50% increase of the PD, expected rating of AAA (sf)
-- 25% increase of the LGD, expected rating of AAA (sf)
-- 50% increase of the LGD, expected rating of AAA (sf)
-- 25% increase of the PD and 25% increase of the LGD, expected rating of AAA (sf)
-- 50% increase of the PD and 25% increase of the LGD, expected rating of AAA (sf)
-- 25% increase of the PD and 50% increase of the LGD, expected rating of AAA (sf)
-- 50% increase of the PD and 50% increase of the LGD, expected rating of AAA (sf)

Prado IV Class A Notes Risk Sensitivity:
-- 25% increase of the PD, expected rating of AAA (sf)
-- 50% increase of the PD, expected rating of AA (high) (sf)
-- 25% increase of the LGD, expected rating of AAA (sf)
-- 50% increase of the LGD, expected rating of AAA (sf)
-- 25% increase of the PD and 25% increase of the LGD, expected rating of AA (high) (sf)
-- 50% increase of the PD and 25% increase of the LGD, expected rating of AA (low) (sf)
-- 25% increase of the PD and 50% increase of the LGD, expected rating of AA (sf)
-- 50% increase of the PD and 50% increase of the LGD, expected rating of A (high) (sf)

For further information on DBRS Morningstar 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: Shalva Beshia, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 29 February 2016 (Prado II)
Initial Rating Date: 23 March 2017 (Prado IV)

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.

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

A description of how DBRS Morningstar 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 [email protected].