DBRS Morningstar Confirms Ratings on Two Santander Consumer Spain Auto Transactions

DBRS Ratings GmbH (DBRS Morningstar) confirmed its ratings on the notes issued by Santander Consumer Spain Auto 2019-1 FT (SCSA 2019-1) and Santander Consumer Spain Auto 2020-1, FT (SCSA 2020-1) as follows:

SCSA 2019-1:
-- Class A Notes at AA (high) (sf)
-- Class B Notes at AA (sf)
-- Class C Notes at A (low) (sf)
-- Class D Notes at BBB (sf)

SCSA 2020-1:
-- Series A Notes at AA (sf)
-- Series B Notes at A (sf)
-- Series C Notes at BBB (high) (sf)
-- Series D Notes at BB (sf)
-- Series E Notes at B (low) (sf)

The ratings on the respective Class A Notes and Series A Notes address the timely payment of interest and the ultimate repayment of principal on or before the respective legal final maturity dates in December 2035 for SCSA 2019-1 and March 2033 for SCSA 2020-1. The ratings on the remaining rated notes address the ultimate payment of interest and repayment of principal on or before the respective legal final maturity dates.

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

-- Portfolio performance, in terms of delinquencies, defaults, and losses as of the June 2021 payment dates;
-- 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 SCSA 2019-1; and
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

The transactions are securitisations of Spanish auto loan receivables originated and serviced by Santander Consumer E.F.C. (SC EFC). The original portfolios of EUR 550.0 million and EUR 520.0 million for SCSA 2019-1 and SCSA 2020-1, respectively, consisted of loans granted primarily to private individuals (96.6% and 97.2% of the portfolio balance, respectively), for the purchase of both new and used vehicles. SCSA 2019-1 closed in October 2019 and includes a 26-month revolving period scheduled to end in December 2021, period during which concentration limits are in place to mitigate any negative evolution of the portfolio, and performance triggers are included in the revolving period termination events. To date, all triggers have been met. SCSA 2020-1 is a static securitisation which closed in September 2020.

PORTFOLIO PERFORMANCE

SCSA 2019-1:
As of the June 2021 payment date, loans that were 0 to 30 days, 30 to 60 days, and 60 to 90 days delinquent represented 0.9%, 0.5%, and 0.2% of the outstanding portfolio balance, respectively. Gross cumulative defaults, defined as loans more than 90 days in arrears, amounted to 1.8% of the aggregate initial and subsequent portfolios original balance, 42.8% of which has been recovered to date.

SCSA 2020-1:
As of the June 2021 payment date, loans that were 0 to 30 days, 30 to 60 days, and 60 to 90 days delinquent represented 1.0%, 0.2%, and 0.2% of the outstanding portfolio balance, respectively. Gross cumulative defaults, defined as loans more than 90 days in arrears, amounted to 0.4% of the initial portfolio original balance, 48.0% of which has been recovered to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
For SCSA 2019-1, 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 5.6% and 48.7%, respectively. For SCSA 2020-1, DBRS Morningstar has updated its base case PD and LGD assumptions to 5.2% and 47.4%, respectively.

CREDIT ENHANCEMENT

SCSA 2019-1:
The subordination of the respective junior obligations provides credit enhancement to the rated notes. As of the June 2021 payment date, credit enhancement to the Class A Notes remained at 20.0%; credit enhancement to the Class B Notes remained at 9.5%; credit enhancement to the Class C Notes remained at 4.5%; and credit enhancement to the Class D Notes remained at 2.6%. The credit enhancement levels have remained unchanged since the DBRS Morningstar initial rating as the transaction is still in the revolving period.

The transaction benefits from liquidity support provided by a nonamortising cash reserve, available to cover senior expenses, swap payments, and interest payments on the collateralised notes . The reserve has a target balance equal to 1.0% of the initial outstanding balance of the Series A to E Notes and, as of the June 2021 payment date, stood at its target balance of EUR 5.46 million.

SCSA 2020-1:
The subordination of the respective junior obligations provides credit enhancement to the rated notes. As of the June 2021 payment date, credit enhancement to the Series A Notes remained at 13.5%; credit enhancement to the Series B Notes remained at 8.8%; credit enhancement to the Series C Notes remained at 5.2%; credit enhancement to the Series D Notes remained at 1.9%; and credit enhancement to the Series E Notes remained at 0.0%. The credit enhancement levels have remained unchanged since the DBRS Morningstar initial rating as the rated notes have been repaying principal on a pro rata basis since closing, in accordance with the transactions priority of payments.

The transaction benefits from liquidity support provided by an amortising cash reserve, available to cover senior expenses and interest payments on the rated notes. The reserve has a target balance equal to 1.0% of the outstanding balance of the Series A to E Notes, subject to a floor of EUR 2.6 million. As of the June 2021 payment date, the reserve was at its target balance of EUR 4.61 million.

Santander Consumer Finance, S.A. (SCF) acts as the account bank for the transactions. Based on DBRS Morningstar's private rating of SCF, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structures, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

Banco Santander SA (Santander) acts as the hedging counterparty in both transactions. DBRS Morningstar's public Long-Term Critical Obligations Rating of Santander at AA (low) is consistent with the First Rating Threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

The rating on the Series E notes of SCSA 2020-1 materially deviates from the higher rating implied by the cash flow analysis. DBRS Morningstar considers a material deviation to be a rating difference of three or more notches between the assigned rating and the rating implied after application of the relevant methodologies; in this case, the rating is deemed to be highly sensitive to the sequential redemption trigger in the transaction and the timing of such trigger breach, which is dependent on future transaction performance.

DBRS Morningstar analysed the transaction structures in Intex DealMaker.

The coronavirus 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 increase in the coming months for many ABS transactions, some meaningfully. The ratings are based on additional analysis and, where appropriate, adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For these transactions, DBRS Morningstar conducted additional sensitivity analysis to determine that the transactions benefit from sufficient liquidity support to withstand high levels of payment holidays in the portfolios. As of June 2021, 5.8% of the SCSA 2019-1 pool benefitted from payment holidays, while none of the SCSA 2020-1 portfolio was benefitting from payment holidays.

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.

On 8 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated ABS transactions in Europe. For more details, please see: https://www.dbrsmorningstar.com/research/360734/european-abs-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.

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

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.

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 the “Master European Structured Finance Surveillance Methodology” (8 February 2021).

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

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 action.

An asset and a cash flow analysis were both conducted. For SCSA 2019-1, due to the inclusion of a revolving period in the transaction, the analysis continues to consider potential portfolio migration based on 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 quarterly transaction reports and information provided by Santander de Titulización S.G.F.T., S.A. (the Management Company), 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 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 SCSA 2019-1 took place on 5 October 2020, when DBRS Morningstar confirmed its ratings on the Class A, Class B, Class C, and Class D Notes at AA (high) (sf), AA (sf), A (low) (sf), and BBB (sf), respectively. The last rating action on SCSA 2020-1 took place on 25 September 2020, when DBRS Morningstar finalised its provisional ratings on the Series A, Series B, Series C, Series D, and Series E Notes at AA (sf), A (sf), BBB (high) (sf), BB (sf), and B (low) (sf), respectively.

The lead analyst responsibilities for SCSA 2020-1 have been transferred to Daniel Rakhamimov.

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 SCSA 2019-1, the base case PD and LGD of the current pool of loans for the Issuer are 5.6% and 48.7%, respectively. For SCSA 2020-1, the base case PD and LGD of the current pool of loans for the Issuer are 5.2% and 47.4%, 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 SCSA 2019-1 Class A Notes would be expected to decrease to AA (sf), ceteris paribus. If the PD increases by 50%, the rating on the SCSA Class A Notes would be expected to remain at AA (high) (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating on the SCSA 2019-1 Class A Notes would be expected to decrease to A (high) (sf), ceteris paribus.

SCSA 2019-1 Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (high) (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 (low) (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 A (high) (sf)

SCSA 2019-1 Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (sf)
-- 50% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD, expected rating of AA (low) (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (low) (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 (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf)

SCSA 2019-1 Class C Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in LGD, expected rating of BB (low) (sf)
-- 25% increase in PD, expected rating of BBB (sf)
-- 50% increase in PD, expected rating of BBB (low) (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 B (high) (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 (sf)

SCSA 2019-1 Class D Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BB (low) (sf)
-- 50% increase in LGD, expected rating below B (sf)
-- 25% increase in PD, expected rating of BB (high) (sf)
-- 50% increase in PD, expected rating of BB (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of B (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating below B (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating below B (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating below B (sf)

SCSA 2020-1 Series 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 AA (low) (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (low) (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 (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf)

SCSA 2020-1 Series B Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (sf)
-- 50% increase in LGD, expected rating of BBB (low) (sf)
-- 25% increase in PD, expected rating of A (low) (sf)
-- 50% increase in PD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (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)

SCSA 2020-1 Series C Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in LGD, expected rating of BB (low) (sf)
-- 25% increase in PD, expected rating of BBB (sf)
-- 50% increase in PD, expected rating of BBB (low) (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 B (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of B (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of B (sf)

SCSA 2020-1 Series D Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BB (low) (sf)
-- 50% increase in LGD, expected rating of B (sf)
-- 25% increase in PD, expected rating of BB (sf)
-- 50% increase in PD, expected rating of B (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of B (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating below B (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating below B (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating below B (sf)

SCSA 2020-1 Series E Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating below B (sf)
-- 50% increase in LGD, expected rating below B (sf)
-- 25% increase in PD, expected rating below B (sf)
-- 50% increase in PD, expected rating below B (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating below B (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating below B (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating below B (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating below B (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. 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: Daniel Rakhamimov, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 8 October 2019 (SCSA 2019-1); 26 August 2020 (SCSA 2020-1)

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 these transactions can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (8 February 2021), https://www.dbrsmorningstar.com/research/373435/master-european-structured-finance-surveillance-methodology.
-- Rating European Structured Finance Transactions Methodology (30 July 2021), https://www.dbrsmorningstar.com/research/382486/rating-european-structured-finance-transactions-methodology.
-- Rating European Consumer and Commercial Asset-Backed Securities (3 September 2020), https://www.dbrsmorningstar.com/research/366294/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Legal Criteria for European Structured Finance Transactions (29 July 2021), https://www.dbrsmorningstar.com/research/382171/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (19 November 2020), https://www.dbrsmorningstar.com/research/370270/operational-risk-assessment-for-european-structured-finance-servicers.
-- Operational Risk Assessment for European Structured Finance Originators (30 September 2020), https://www.dbrsmorningstar.com/research/367603/operational-risk-assessment-for-european-structured-finance-originators .
-- Interest Rate Stresses for European Structured Finance Transactions (28 September 2020), https://www.dbrsmorningstar.com/research/367292/interest-rate-stresses-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (24 September 2020), https://www.dbrsmorningstar.com/research/367092/derivative-criteria-for-european-structured-finance-transactions.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021), https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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].