DBRS Morningstar Upgrades and Confirms Ratings on Two Santander Consumer Spain Auto Transactions

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions 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):

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

SCSA 2020-1:
-- Series A Notes confirmed at AA (sf)
-- Series B Notes confirmed at A (sf)
-- Series C Notes confirmed at BBB (high) (sf)
-- Series D Notes upgraded to BBB (low) (sf) from BB (sf)
-- Series E Notes upgraded to BB (sf) from 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 rating actions follow an annual review of the transactions and are based on the following analytical considerations:
-- Updated portfolio performance, in terms of delinquencies, defaults, and losses, as of the June 2022 payment date;
-- Updated probability of default (PD) and loss given default (LGD) assumptions on the remaining receivables; and
-- Current available credit enhancement to the rated notes to cover the expected losses at their respective rating levels.

The transactions are securitisations of Spanish auto loan receivables originated and serviced by Santander Consumer E.F.C., S.A. 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 included a 26-month revolving period that ended in December 2021 while SCSA 2020-1 is a static securitisation that closed in September 2020.

PORTFOLIO PERFORMANCE

SCSA 2019-1:
As of the June 2022 payment date, loans that were 0 to 30 days, 30 to 60 days, and 60 to 90 days delinquent represented 2.5%, 0.9%, and 0.5% of the outstanding portfolio balance, respectively. Gross cumulative defaults, defined as loans more than 90 days in arrears, amounted to 2.6% of the aggregate initial and subsequent portfolios original balance, 60.1% of which has been recovered to date.

SCSA 2020-1:
As of the June 2022 payment date, loans that were 0 to 30 days, 30 to 60 days, and 60 to 90 days delinquent represented 2.1%, 0.5%, and 0.4% of the outstanding portfolio balance, respectively. Gross cumulative defaults, defined as loans more than 90 days in arrears, amounted to 1.3% of the initial portfolio original balance, 48.5% of which has been recovered to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
For SCSA 2019-1, DBRS Morningstar updated its base case PD and LGD assumptions to 4.6% and 47.0%, respectively while, for SCSA 2020-1, DBRS Morningstar updated its base case PD and LGD assumptions to 4.2% and 45.8%, respectively, based on updated historical performance data received from the originator in the course of its latest securitisation.

CREDIT ENHANCEMENT

SCSA 2019-1:
The subordination of the respective junior obligations provides credit enhancement to the rated notes. As of the June 2022 payment date, credit enhancement to the Class A, Class B, Class C, and Class D Notes was 19.8%, 9.3%, 4.2%, and 2.4%, respectively. The credit enhancement levels have remained stable since the end of the revolving period in December 2021 as the rated notes have been repaying principal on a pro rata basis since closing, in accordance with the transaction’s priority of payments.

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 Class A to Class E Notes and, as of the June 2022 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 2022 payment date, credit enhancement to the Series A, Series B, Series C, Series D, and Series E Notes was 13.5%, 8.8%, 5.2%, 1.9%, and 0.0%, respectively. The credit enhancement levels have remained unchanged since DBRS Morningstar’s initial rating as the rated notes have been repaying principal on a pro rata basis since closing, in accordance with the transaction’s 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 Series E Notes, subject to a floor of EUR 2.60 million. As of the June 2022 payment date, the reserve was at its target balance of EUR 3.29 million.

Santander Consumer Finance, S.A. (SCF) acts as the account bank for the transactions. Based on DBRS Morningstar's private rating on 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 AA (low) on Santander is consistent with the First Rating Threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant impact on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

DBRS Morningstar analysed the transaction structures 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” (19 May 2022).

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 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.

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/401817/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 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. In the context of a new transaction from the same originator, DBRS Morningstar was also provided with updated historical performance data as follows:
-- Quarterly default vintage analysis from Q1 2013 to Q4 2021;
-- Quarterly recovery vintage analysis from Q1 2013 to Q4 2021; and
-- Dynamic monthly delinquency data from Q1 2013 to Q4 2021.

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 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 2019-1 took place on 2 September 2021, 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 2 September 2021, when DBRS Morningstar confirmed its 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.

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

Sensitivity Analysis: 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 rating (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 are 4.6% and 47.0%, respectively. For SCSA 2020-1, the base case PD and LGD of the current pool of loans are 4.2% and 45.8%, 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 PD increases by 50%, the rating of the SCSA 2019-1 Class A Notes would be expected to remain at AA (high) (sf), ceteris paribus. If the LGD increases by 50%, the rating of the SCSA 2019-1 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 2019-1 Class A Notes would be expected to fall to AA (low) (sf).

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 (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 AA (low) (sf)

Class B 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 BBB (high) (sf)

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

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

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

Series B 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 A (low) (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 (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)

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

Series D Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in LGD, expected rating of BB (sf)
-- 25% increase in PD, expected rating of BBB (low) (sf)
-- 50% increase in PD, expected rating of BB (high) (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)

Series E Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BB (sf)
-- 50% increase in LGD, expected rating of B (high) (sf)
-- 25% increase in PD, expected rating of BB (sf)
-- 50% increase in PD, expected rating of BB (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (low) (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 (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
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60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
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The rating methodologies used in the analysis of these transactions can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- Rating European Structured Finance Transactions Methodology (15 July 2022), https://www.dbrsmorningstar.com/research/399899/rating-european-structured-finance-transactions-methodology.
-- Legal Criteria for European Structured Finance Transactions (22 July 2022), https://www.dbrsmorningstar.com/research/400166/legal-criteria-for-european-structured-finance-transactions.
-- Master European Structured Finance Surveillance Methodology (19 May 2022), https://www.dbrsmorningstar.com/research/397033/master-european-structured-finance-surveillance-methodology.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (17 May 2022), https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.
-- Operational Risk Assessment for European Structured Finance Originators (16 September 2021), https://www.dbrsmorningstar.com/research/384512/operational-risk-assessment-for-european-structured-finance-originators.
-- 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.
-- 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.
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2021), https://www.dbrsmorningstar.com/research/384920/interest-rate-stresses-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (20 September 2021), https://www.dbrsmorningstar.com/research/384624/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 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].