DBRS Morningstar Takes Rating Actions on Two Santander Consumer Spain Auto Transactions

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the notes issued by FTA Santander Consumer Spain Auto 2014-1 (SCSA 2014-1) and FT Santander Consumer Spain Auto 2016-1 (SCSA 2016-1):

SCSA 2014-1:
-- Class A Notes confirmed at AA (high) (sf)
-- Class B Notes confirmed at AA (high) (sf)
-- Class C Notes upgraded to AA (high) (sf) from AA (sf)
-- Class D Notes upgraded to AA (sf) from A (sf)
-- Class E Notes confirmed at C (sf)

SCSA 2016-1:
-- Series A confirmed at AA (high) (sf)
-- Series B confirmed at AA (high) (sf)
-- Series C upgraded to AA (high) (sf) from AA (low) (sf)
-- Series D upgraded to AA (low) (sf) from A (sf)

For SCSA 2014-1, the rating on the Class A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in June 2032. The ratings on the Class B, Class C, Class D, and Class E Notes address the ultimate payment of interest and principal on or before the legal final maturity date.

For SCSA 2016-1, the rating on the Series A notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in April 2032. The ratings on the Series B, Series C, and Series D 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 transactions and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses as of the most recent payment dates;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- Current available credit enhancement to the rated notes to cover the expected losses at their respective rating levels;
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic;
-- The rating of the Class E Notes issued by SCSA 2014-1 is based on DBRS Morningstar’s review of the following considerations: (1) the Class E Notes are in the first-loss position and, as such, are highly likely to default, and (2) given the characteristics of the Class E Notes as defined in the transaction documents, the default most likely would only be recognised at the maturity or early termination of the transaction.

SCSA 2014-1 and SCSA 2016-1 are securitisations of Spanish auto loan receivables originated and serviced by Santander Consumer E.F.C., S.A. (SC, the Servicer, or the Originator), a subsidiary of Santander Consumer Finance, S.A. (SCF). SCSA 2014-1 closed in November 2014 with an initial portfolio of EUR 760.0 million and included a four-year revolving period, which ended in December 2018. SCSA 2016-1 closed in March 2016 with an initial portfolio of EUR 765.0 million and included a 40-month revolving period, which ended in July 2019.

PORTFOLIO PERFORMANCE
-- SCSA 2014-1: As of the September 2021 payment date, loans 30 to 60 days and 60 to 90 days in arrears represented 1.3% and 0.9% of the outstanding portfolio balance, while loans greater than 90 days in arrears represented 2.2%. Gross cumulative defaults amounted to 1.3% of the aggregate initial portfolios balance, of which 33.0% has been recovered to date.

-- SCSA 2016-1: As of the October 2021 payment date, loans 30 to 60 days and 60 to 90 days in arrears represented 1.4% and 1.1% of the outstanding portfolio balance, while loans greater than 90 days in arrears represented 2.4%. Gross cumulative defaults amounted to 1.3% of the aggregate initial portfolios balance, of which 26.0% has been recovered to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables of each transaction and updated its base case PD and LGD assumptions as follows:
-- For SCSA 2014-1, the base case PD and LGD assumptions were updated to 4.8% and 43.0%, respectively.
-- For SCSA 2016-1, the base case PD and LGD assumptions were updated to 5.0% and 43.7%, respectively.

CREDIT ENHANCEMENT
The subordination of the respective junior obligations and cash reserves provides credit enhancement to the rated notes. The transactions continue to deleverage steadily, resulting in increased credit enhancement available to the rated notes, which prompted the confirmation and upgrade rating actions.

As of the September 2021 payment date, credit enhancement to the Class A, Class B, Class C, and Class D Notes in SCSA 2014-1 increased to 50.8%, 36.1%, 28.0%, and 20.3%, respectively, from 27.9%, 19.9%, 15.4%, and 11.2%, respectively, at the time of the last annual review 12 months ago. The Class E Notes, which were used to fund the cash reserve, do not benefit from any credit enhancement.

As of the October 2021 payment date, credit enhancement to the Series A, Series B, Series C, and Series D Notes in SCSA 2016-1 increased to 51.7%, 39.6%, 22.8%, and 13.7%, respectively, from 29.7%, 22.7%, 13.1%, and 7.9%, respectively, at the time of the last annual review 12 months ago.

SCSA 2014-1 benefits from an amortising reserve fund, funded to EUR 38.0 million at closing, available to cover senior fees, interest, and principal payments on the Class A through Class D notes. Once four years have passed since the end of the revolving period, the reserve will begin to amortise to a target of 10% of the outstanding balance of the Class A through Class D Notes, subject to a floor of EUR 19.0 million. As of the September 2021 payment date, the reserve was at its target level of EUR 38.0 million.

SCSA 2016-1 benefits from a nonamortising reserve fund, funded to EUR 15.3 million at closing, available to cover senior fees, interest, and principal payments on the Series A through Series D Notes. As of the October 2021 payment date, the reserve was at its target level of EUR 15.3 million.

To mitigate any disruptions in payments due to the replacement of the Servicer or the risk that the Servicer fails to transfer the collections, the transaction documents include the provision for the funding of liquidity and commingling reserves. These were unfunded at closing and will only be funded if the DBRS Morningstar rating of SC’s parent company, SCF, falls below specific thresholds, or SCF’s ownership share in SC decreases below a certain threshold. These reserves continue to be unfunded, as none of the rating triggers have been breached to date.

SCF acts as the account bank for the transactions. Based on the DBRS Morningstar 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.

The transaction structures were analysed in Intex DealMaker.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an immediate 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 asset-backed securities (ABS) transactions. The ratings are based on additional analysis to expected performance as a result of the global efforts to contain the spread of the coronavirus.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 8 September 2021. DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/384150/baseline-macroeconomic-scenarios-for-rated-sovereigns and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

On 2 November 2021, DBRS Morningstar updated its 8 May 2020 commentary outlining the impact of the coronavirus crisis on performance of DBRS Morningstar-rated auto ABS transactions in Europe. For more details, please see: https://www.dbrsmorningstar.com/research/387320/european-auto-abs-recovery-performance-update and https://www.dbrsmorningstar.com/research/360734/european-abs-transactions-risk-exposure-to-coronavirus-covid-19-effect.

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 this transaction 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 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.

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 DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The sources of data and information used for these ratings include investor and servicer reports provided by Santander de Titulización, S.G.F.T., S.A. (the Management Company) and loan-level data provided by the European DataWarehouse GmbH, as well as updated historical performance data available from the Originator: quarterly gross loss and recoveries vintage data for the period ranging between Q1 2013 to Q2 2021.

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

For SCSA 2014-1, at the time of the initial ratings, DBRS Morningstar was not supplied with third-party assessments. However, this did not impact the rating analysis. For SCSA 2016-1, 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 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.

The last rating action on SCSA 2014-1 took place on 6 April 2021, when DBRS Morningstar upgraded the ratings on the Class A, Class B, Class C, and Class D Notes to AA (high) (sf), AA (high) (sf), AA (sf), and A (sf), respectively, from A (high) (sf), A (high) (sf), A (sf), and A (low) (sf), respectively, following the finalisation of the updated Legal Criteria for European Structured Finance Transactions methodology. The last annual review took place on 9 November 2020, when DBRS Morningstar confirmed the ratings on the Class A and Class B Notes at A (high) (sf), upgraded the ratings on the Class C and Class D Notes to A (sf) and A (low) (sf), respectively, from A (low) (sf) and BBB (sf), respectively, and confirmed the rating on the Class E Notes at C (sf).

The last rating action on SCSA 2016-1 took place on 6 April 2021, when DBRS Morningstar upgraded the ratings on the Series A and Series B Notes to AA (high) (sf) from AA (sf) following the finalisation of the updated Legal Criteria for European Structured Finance Transactions methodology. The last annual review took place on 9 November 2020, when DBRS Morningstar confirmed the ratings on the Series A and Series B Notes at AA (sf), and upgraded the ratings on the Series C and Series D Notes to AA (low) (sf) and A (sf), respectively, from A (high) (sf) and A (low) (sf), respectively.

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.
-- SCSA 2014-1: the base case PD and LGD of the current pool of loans are 4.8% and 43.0%, respectively.
-- SCSA 2016-1: the base case PD and LGD of the current pool of loans are 5.0% and 43.7%, 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 of the SCSA 2014-1 Class A Notes would be expected to remain at AA (high) (sf), ceteris paribus. If the PD increases by 50%, the rating of the SCSA 2014-1 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 of the SCSA 2014-1 Class A Notes would be expected to remain at AA (high) (sf).

SCSA 2014-1 Class A 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 (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 (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)

SCSA 2014-1 Class B 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 (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 (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)

SCSA 2014-1 Class C 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 (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 (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 2014-1 Class D Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of A (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (high) (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 A (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)

The rating on the SCSA 2014-1 Class E Notes would not be affected by a change in either the PD or the LGD.

SCSA 2016-1 Series A 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 (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 (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)

SCSA 2016-1 Series B 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 (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 (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)

SCSA 2016-1 Series C 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 (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (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 2016-1 Series D Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of AA (low) (sf)
-- 50% increase in PD, expected rating of A (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (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: https://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: 21 November 2014 (SCSA 2014-1); 10 March 2016 (SCSA 2016-1)

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 Consumer and Commercial Asset-Backed Securitisations (29 October 2021), https://www.dbrsmorningstar.com/research/387042/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Rating European Structured Finance Transactions Methodology (30 July 2021), https://www.dbrsmorningstar.com/research/382486/rating-european-structured-finance-transactions-methodology.
-- 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 (16 September 2021), https://www.dbrsmorningstar.com/research/384513/operational-risk-assessment-for-european-structured-finance-servicers.
-- 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 these credits or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].