Press Release

DBRS Morningstar Assigns Provisional Ratings to Santander Consumer Spain Auto 2021-1 FT

Auto

September 02, 2021

DBRS Ratings GmbH (DBRS Morningstar) assigned the following provisional ratings to the series of notes to be issued by Santander Consumer Spain Auto 2021-1 FT (the Issuer):

-- Series A Notes at AA (low) (sf)
-- Series B Notes at A (sf)
-- Series C Notes at BBB (sf)
-- Series D Notes at BBB (low) (sf)
-- Series E Notes at BB (sf)

The rating on the Series A Notes addresses the timely payment of interest and the ultimate repayment of principal by the legal final maturity date in June 2035. The ratings on the Series B Notes, Series C Notes, Series D Notes, and Series E Notes address the ultimate payment of interest and the ultimate repayment of principal by the legal final maturity date.

The transaction represents the issuance of Series A Notes, Series B Notes, Series C Notes, Series D Notes, and Series E Notes (the Rated Notes) backed by a portfolio of approximately EUR 575 million of fixed-rate receivables related to auto loans granted by Santander Consumer Finance (SCF; the originator) to private individuals and corporates residing in Spain for the acquisition of new or used vehicles. The originator will also service the portfolio. The Series F Notes will be issued to fund the cash reserve.

DBRS Morningstar based its ratings on a review of the following analytical considerations:
-- The transaction’s capital structure, including form and sufficiency of available credit enhancement.
-- Credit enhancement levels that are sufficient to support DBRS Morningstar’s projected expected net losses under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms of the Rated Notes.
-- SCF’s financial strength and its capabilities with respect to originations, underwriting, and servicing.
-- The other parties’ capabilities and financial strength with regard to their respective roles.
-- DBRS Morningstar’s operational risk review of SCF, which DBRS Morningstar deems to be an acceptable originator and servicer.
-- The credit quality, diversification of the collateral, and historical and projected performance of the portfolio.
-- DBRS Morningstar’s current sovereign rating of the Kingdom of Spain at “A” with a Stable trend.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology and the presence of legal opinions that address the true sale of the assets to the Issuer.

The transaction allocates payments on a combined interest and principal priority of payments basis and benefits from an amortising EUR 5.8 million cash reserve (corresponding to 1.0% of the Rated Notes) funded through the subscription proceeds of the Series F Notes. The cash reserve covers senior costs and interest on the Rated Notes. The cash reserve is part of the available funds.

The transaction benefits from a 15-months revolving period. The repayment of the notes will start on the first amortisation payment date in March 2023 on a pro rata basis unless certain events such as breach of performance triggers, insolvency of the servicer, or termination of the servicer occur. Under these circumstances, the principal repayment of the notes will become fully sequential, and the switch is not reversible. Interest and principal payments on the notes will be made quarterly on the 22nd of March, June, September, and December. The Series A Notes, Series B Notes, and Series C Notes pay interest indexed to three-month Euribor and the Series D Notes, Series E Notes and Series F Notes pay fixed interest rate, whereas the total portfolio pays a fixed interest rate. The interest rate risk arising from the mismatch between the Issuer’s liabilities and the portfolio is hedged through a cap collateral agreement with an eligible counterparty.

At inception, the weighted-average portfolio yield is about 6.2%, well exceeding the senior cost and interest payable by the Issuer; hence, the transaction benefits from a considerable excess of interest collections that the Issuer can apply to offset losses occurring in the current and previous periods. However, excess that is not used in a period will be released toward junior payments in the waterfall.

SCF acts as the account bank for the transaction. Based on DBRS Morningstar’s private rating on SCF, the downgrade provisions outlined in the transaction documents, and structural mitigants inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to SCF to be consistent with the rating assigned to the Rated Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

SCF acts in several roles critical for the transaction, including originator, servicer, and account bank, and the interruption of critical services might affect the Issuer’s capacity to timely fulfil its obligations. DBRS Morningstar believes that SCF’s experience and financial strength, coupled with certain downgrade provisions envisaged for some critical roles, mitigate the risk of serious disruption, but addressed the risk in its analysis and factored in additional stresses commensurate with the residual risk.

DBRS Morningstar analysed the transaction structure in Intex DealMaker, considering the default rates at which the Rated Notes did not return all specified cash flows.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading in some cases to increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may continue to arise in the coming months for many asset-backed security (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. For this transaction, DBRS Morningstar assumed a moderate decline in the expected recovery rate.

On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020–22 period in select economies. These scenarios were last updated on 18 June 2021. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/380281/global-macroeconomic-scenarios-june-2021-update 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 on DBRS Morningstar considerations for European ABS transactions and Coronavirus Disease (COVID-19), please see the following commentary: https://www.dbrsmorningstar.com/research/360734.

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 regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at: https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is “Rating European Consumer and Commercial Asset-Backed Securitisations” (3 September 2020).

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: http://www.dbrsmorningstar.com/about/methodologies.

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 the transaction, the analysis considers potential portfolio migration based in replenishment criteria set forth in the transaction legal documents

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 Morningstar Credit Ratings” of the Global Methodology for Rating Sovereign Governments at: https://www.dbrsmorningstar.com/research/381451/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include the originator, the Issuer, and Santander de Titulización S.G.F.T., S.A.

DBRS Morningstar received static default vintage data (more than 90 days in arrears) and static recoveries vintage data for the period from Q1 2013 to Q2 2021. Stratification tables and portfolio were also provided as at August 2021.

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

DBRS Morningstar was not 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 purposes 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.

These ratings concern expected-to-be-issued new financial instruments. These are the first DBRS Morningstar ratings on these financial instruments.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on 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):

-- Probability of default (PD) used: Expected Base Case PD of 6.14%, and 19.85%, 15.35%, 10.75%, 9.93% and 8.29%, respectively, for AA (low) (sf), A (sf), BBB (sf), BBB (low) (sf), and B (sf) scenarios, on a 25% and 50% increase in the applicable PD.
-- Recovery rate used: Expected recovery rate of 48.07%.
-- Loss given default (LGD) used: Expected LGD of 68.59%, 64.75%, 60.90%, 59.62% and 57.10%%, respectively, for AA (low) (sf), A (sf), BBB (sf), BBB (low) (sf), and BB (sf) scenarios, on a 25% and 50% increase in the applicable LGD.

Scenario 1: A 25% increase in the expected default.
Scenario 2: A 50% increase in the expected default.
Scenario 3: A 25% increase in the expected LGD.
Scenario 4: A 25% increase in the expected default and a 25% increase in the expected LGD.
Scenario 5: A 50% increase in the expected default and a 25% increase in the expected LGD.
Scenario 6: A 50% increase in the expected LGD.
Scenario 7: A 25% increase in the expected default and a 50% increase in the expected LGD.
Scenario 8: A 50% increase in the expected default and a 50% increase in the expected LGD.

DBRS Morningstar concludes that the expected ratings under the eight stress scenarios are:

-- Series A Notes: A (sf), A (low) (sf), A (sf), A (low) (sf), BBB (sf), BBB (high) (sf), BBB (sf), and BB (high) (sf).
-- Series B Notes: BBB (high) (sf), BBB (sf), BBB (sf), BB (high) (sf), BB (low) (sf), BBB (low) (sf), BB (low) (sf), and B (sf).
-- Series C Notes: BB (sf), BB (low) (sf), BB (sf), B (sf), no quantitative rating is obtain for the other scenarios.
-- Series D Notes: BB (low) (sf), B (sf), BB (low) (sf), B (low) (sf), no quantitative rating is obtain for the other scenarios.
-- Series E Notes: B (high) (sf), B (low) (sf), B (sf), no quantitative rating is obtain for the other scenarios.

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. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: María López, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 2 September 2021

DBRS Ratings GmbH, Sucursal en España
Paseo de la Castellana 81
Plantas 26 & 27
28046 Madrid, Spain
Spain
Tel. +34 (91) 903 6500

DBRS Ratings GmbH
Neue Mainzer Straße 75
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: http://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: http://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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