Press Release

DBRS Morningstar Confirms Ratings on Three SC Germany Auto Transactions

Auto

May 22, 2020

DBRS Ratings GmbH (DBRS Morningstar) confirmed its ratings on the respective Class A Notes (collectively, the Notes) issued by SC Germany Auto 2014-2 UG (haftungsbeschränkt) (Auto 2014-2), SC Germany Auto 2016-2 UG (haftungsbeschränkt) (Auto 2016-2), and SC Germany Auto 2018-1 UG (haftungsbeschränkt) (Auto 2018-1), as follows:

Auto 2014-2:
-- Class A Notes confirmed at AA (low) (sf)

Auto 2016-2:
-- Class A Notes confirmed at A (sf)

Auto 2018-1:
-- Class A Notes confirmed at AAA (sf)

The ratings on the Notes address the timely payment of interest and the ultimate payment of principal on or before the respective legal final maturity dates in August 2030 (2014-2), July 2032 (Auto 2016-2), and December 2027 (Auto 2018-1).

The confirmations follow annual reviews of the transactions and are based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies, defaults, and losses as of the May 2020 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- Current available credit enhancement to the Notes to cover the expected losses at their respective rating levels;
-- No revolving period termination events have occurred for Auto 2016-2.

The transactions are securitisations of German auto loan receivables originated to private borrowers by Santander Consumer Bank AG (SCB), a subsidiary of Santander Consumer Finance S.A. (SCF), which also acts as the servicer in the transactions. The transactions closed in September 2014, July 2016, and June 2018, respectively. Auto 2014-2 included a four-year revolving period, which ended in September 2018, while Auto 2016-2 includes a four-year revolving period extending until July 2020.

PORTFOLIO PERFORMANCE

Auto 2014-2:
As of the May 2020 payment date, loans that were 0 to 30 days, 30 to 60 days, and 60 to 90 days delinquent represented 0.3%, 0.2%, and 0.1% of the outstanding portfolio balance, respectively, while loans more than 90 days delinquent amounted to 0.2%. Gross cumulative defaults amounted to 0.4% of the aggregate original portfolio balance, with cumulative recoveries of 24.4% to date.

Auto 2016-2:
As of the May 2020 payment date, loans that were 0 to 30 days, 30 to 60 days, and 60 to 90 days delinquent represented 0.3%, 0.2%, and 0.1% of the outstanding portfolio balance, respectively, while loans more than 90 days delinquent amounted to 0.1%. Gross cumulative defaults amounted to 0.3% of the aggregate original portfolio balance, with cumulative recoveries of 14.9% to date.

Auto 2018-1:
As of the May 2020 payment date, loans that were 0 to 30 days, 30 to 60 days, and 60 to 90 days delinquent represented 0.2%, 0.2%, and 0.1% of the outstanding portfolio balance, respectively, while loans more than 90 days delinquent amounted to 0.1%. Gross cumulative defaults amounted to 0.2% of the original portfolio balance, with cumulative recoveries of 11.5% to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
For Auto 2014-2, DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 2.5% and 65.2%, respectively; for Auto 2016-2, updated its base case PD and LGD assumptions to 2.7% and 65.4%, respectively; for Auto 2018-1, updated its base case PD and LGD assumptions to 1.2% and 68.5%, respectively. The assumptions for Auto 2016-2 continue to be based on a worst-case portfolio composition, taking into considerations the concentration limits in place during the revolving period.

CREDIT ENHANCEMENT
The subordination of the respective Class B Notes in the transactions provides credit enhancement to the Notes. As of the May 2020 payment dates, credit enhancement to the Class A Notes in Auto 2014-2 increased to 8.9% from 5.2% at the time of the last annual review; credit enhancement to the Class A Notes in Auto 2016-2 remains unchanged at 4.0% as it is still in the revolving period; credit enhancement to the Class A Notes in Auto 2018-1 increased to 13.1% from 8.9%.

Auto 2014-2 and Auto 2016-2 benefit from nonamortising liquidity reserves, available to cover senior expenses and interest payments on the respective Class A and Class B Notes. As of the May 2020 payment date, the reserves were at their target levels of EUR 30.0 million and EUR 15.0 million for Auto 2014-2 and Auto 2016-2, respectively.

Auto 2018-1 benefits from an amortising liquidity reserve, available to cover senior expenses, swap payments, and interest on the Class A Notes. The reserve has a target balance equal to 1.0% of the outstanding principal balance of the Class A Notes, subject to a floor of EUR 1.0 million. As of the May 2020 payment date, the reserve was at its target of EUR 2.7 million.

BNP Paribas Securities Services, Luxembourg Branch (BNPSS) acts as the account bank for Auto 2014-2, Banco Santander S.A., Frankfurt Branch (Santander Frankfurt) acts as the account bank for Auto 2016-2, and ABN AMRO Bank N.V. (ABN AMRO) acts as the account bank for Auto 2018-1. Based on the DBRS Morningstar private ratings of BNPSS and Santander Frankfurt, the DBRS Morningstar public Long-Term Critical Obligations Rating of ABN AMRO at AA, the respective downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structures, DBRS Morningstar considers the risk arising from the exposures to the account banks to be consistent with the ratings assigned to the Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DZ BANK AG Deutsche Zentral-Genossenschaftsbank (DZ Bank) and ABN AMRO act as the swap counterparties for Auto 2018-1. DBRS Morningstar’s public Long-Term Critical Obligation Ratings of DZ Bank and ABN AMRO at AA are consistent with the First Rating Threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many ABS transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus.

On 16 April 2020, the DBRS Morningstar Sovereign group published its outlook on the impact to key economic indicators for the 2020-22 time frame. For details see the following commentaries: https://www.dbrsmorningstar.com/research/359679/global-macroeconomic-scenarios-implications-for-credit-ratings and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information on DBRS Morningstar considerations for European ABS transactions and Coronavirus Disease (COVID-19), please see the following commentary: https://www.dbrsmorningstar.com/research/360734.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (22 April 2020). DBRS Morningstar 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 Auto 2016-2, 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 at: https://www.dbrsmorningstar.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.dbrsmorningstar.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include monthly investor and servicer reports provided by SCB and loan-level data provided by 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 respective initial ratings, DBRS Morningstar was supplied with third-party assessments. 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 process.

The last rating actions on Auto 2014-2 and Auto 2016-2 took place on 26 June 2019, when DBRS Morningstar upgraded the rating of the Class A Notes to AA (low) (sf) from A (high) (sf) for Auto 2014-2 and confirmed the rating of the Class A Notes at A (sf) for Auto 2016-2.

The last rating action on Auto 2018-1 took place on 21 June 2019, when DBRS Morningstar confirmed the rating of the Class A Notes at AAA (sf).

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies is available at www.dbrsmorningstar.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 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.
-- For Auto 2014-2, the base case PD and LGD of the current pool of loans for the Issuer are 2.5% and 65.2%, respectively. For Auto 2016-2, the base case PD and LGD of the current pool of loans for the Issuer are 2.7% and 65.4%, respectively. For Auto 2018-1, the base case PD and LGD of the current pool of loans for the Issuer are 1.2% and 68.5%, 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 on the Auto 2014-2 Class A Notes would be expected to remain at AA (sf), ceteris paribus. If the PD increases by 50%, the rating on the Auto 2014-2 Class A Notes would be expected to remain at AA (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating on the Auto 2014-2 Class A Notes would be expected to remain at AA (low) (sf), ceteris paribus.

Auto 2014-2 Class A 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 AA (low) (sf)
-- 50% increase in PD, expected rating of AA (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (low) (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)

Auto 2016-2 Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (sf)
-- 50% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD, expected rating of A (sf)
-- 50% increase in PD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (high) (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 BB (low) (sf)

Auto 2018-1 Class A 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 of AAA (sf)

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see:
https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings GmbH are subject to EU and U.S. regulations only.

Lead Analyst: Daniel Rakhamimov, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 19 September 2014 (Auto 2014-2); 28 July 2016 (Auto 2016-2); 30 May 2018 (Auto 2018-1)

DBRS Ratings GmbH
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60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500

Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at https://www.dbrsmorningstar.com/research/278375.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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