Morningstar DBRS Upgrades and Confirms Credit Ratings on FT PYMES Santander 15

DBRS Ratings GmbH (Morningstar DBRS) took the following credit rating actions on the notes issued by FT PYMES Santander 15 (the Issuer), as follows:

-- Series A Notes upgraded to AAA (sf) from AA (high) (sf)
-- Series B Notes upgraded to BBB (low) (sf) from B (high) (sf)
-- Series C Notes confirmed at C (sf)

The credit rating on the Series A Notes addresses the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date in April 2051. The credit ratings on the Series B and Series C Notes address the ultimate payment of interest and principal on or before the legal final maturity date.

The credit rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- The portfolio performance, in terms of delinquencies, defaults, and losses, as of the April 2024 payment date;
-- The one-year base case probability of default (PD), default and recovery rates based on the current portfolio of receivables; and
-- The current available credit enhancement to the Series A and Series B Notes to cover the expected losses assumed at their respective credit rating levels.

The Series C Notes were issued to fund a reserve fund and are in a first-loss position supported only by available excess spread. Given the characteristics of the Series C Notes, as defined in the transaction documents, the default would most likely be recognised at maturity or following an early termination of the transaction.

The transaction is a cash flow securitisation collateralised by a portfolio of secured and unsecured term loans and credit lines originated by Banco Santander SA (Santander), Banesto, and Banif (prior to their integration into Santander) to corporates, small and medium-size enterprises (SMEs), and self-employed individuals based in Spain. The transaction included a 24-month revolving period, which ended with the January 2022 payment date and the Series A Notes have been amortising since the April 2022 payment date.

PORTFOLIO PERFORMANCE
As of the April 2024 payment date, loans two to three months in arrears represented 0.4% of the outstanding portfolio balance, up from 0.2% in with April 2023. The 90+ days delinquency ratio remained stable at 0.8%, and the cumulative default ratio increased to 0.6%, up from 0.4% in the same period.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS maintained its one-year base case PD assumption of 2.25%. Morningstar DBRS conducted a loan-by-loan analysis of the outstanding portfolio and updated its default and recovery assumptions based on the current pool of receivables.

CREDIT ENHANCEMENT
The Series A Notes benefit from 94.5% of credit enhancement provided by the subordination of the Series B Notes and the reserve fund, up from 52.6% last year. The Series B Notes benefit from 16.0% of credit enhancement provided by the reserve fund, up from 6.3% last year.

The reserve fund was funded through the issuance of the Series C Notes and is available to cover senior fees and interest and principal on the Series A and Series B Notes. As of the April 2024 payment date, the reserve fund was at EUR 149.2 million, slightly below its target level of EUR 150.0 million. The reserve fund can amortise if certain conditions related to the performance of the portfolio are met, subject to the floor of EUR 75.0 million.

Santander acts as the account bank for the transaction. Based on the account bank's reference rating of A (high), which is one notch below the Morningstar DBRS Long Term Critical Obligations Rating of Santander of AA (low), the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, Morningstar DBRS considers the risk arising from the exposure to Santander to be consistent with the credit ratings assigned to the notes, as described in Morningstar DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.

Morningstar DBRS' credit ratings on the notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

Morningstar DBRS' credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

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

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the "Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings" at: https://dbrs.morningstar.com/research/427030.

Morningstar DBRS analysed the transaction structure in its proprietary Excel-based cashflow engine.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is the "Rating CLOs Backed by Loans to European SMEs" (23 February 2024); https://dbrs.morningstar.com/research/428543.

Other methodologies referenced in this transaction are listed at the end of this press release.

Morningstar DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the surveillance section of the principal methodology.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent credit rating action.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit 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://dbrs.morningstar.com/research/421590.

The sources of data and information used for these credit ratings include investor reports provided by the management company, Santander de Titulización S.G.F.T., S.A., and loan-level data provided by the European DataWarehouse GmbH.

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

At the time of the initial credit ratings, Morningstar DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.

Morningstar DBRS considers the data and information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

Morningstar DBRS does not audit or independently verify the data or information it receives in connection with the credit rating process.

The last credit rating action on this transaction took place on 29 June 2023, when Morningstar DBRS confirmed its credit ratings on the Series A, Series B and Series C Notes at AA (high) (sf), B (high) (sf) and C (sf), respectively.

The lead analyst responsibilities for this transaction have been transferred to Baran Cetin.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com.

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit ratings, Morningstar DBRS considered the following stress scenarios, as compared to the parameters used to determine the credit ratings (the base case):
-- PD Rates Used: one-year base case PD of 2.25%, a 10.0% and 20.0% increase on the base case PD.
-- Recovery Rates Used: base case recovery rates of 53.7%, a 10.0% and 20.0% decrease in the base case recovery rates.

Note that the percentage decreases in the recovery rates are assumed for the other stress recovery rate levels. Morningstar DBRS concludes that a hypothetical increase of the base case PD by 20% or a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a confirmation of the credit rating of the Series A Notes at AAA (sf). A scenario combining both an increase in the PD by 10% and a decrease in the recovery rate by 10%, ceteris paribus, would also lead to a confirmation of the credit rating of the Series A Notes at AAA (sf).

With regards to the Series B Notes, a hypothetical increase of the base case PD by 20% or a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a confirmation of the credit rating of the Series B Notes at BBB (low) (sf). A scenario combining both, an increase in the PD by 10% and a decrease in the recovery rate by 10%, ceteris paribus, would also lead to a confirmation of the credit rating of the Series B Notes at BBB (low) (sf).

The credit rating on the Series C Notes would not be affected by a change in either the PD or the LGD.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

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

Lead Analyst: Baran Cetin, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 4 December 2019

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

-- Rating CLOs Backed by Loans to European SMEs (23 February 2024) and SME Diversity Model 2.6.1.4, https://dbrs.morningstar.com/research/428543
-- Global Methodology for Rating CLOs and Corporate CDOs (23 February 2024), https://dbrs.morningstar.com/research/428544
-- European RMBS Insight Methodology (25 March 2024),
https://dbrs.morningstar.com/research/430103
-- European RMBS Insight: Spanish Addendum (8 March 2024),
https://dbrs.morningstar.com/research/429109
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023),
https://dbrs.morningstar.com/research/420602
-- Legal Criteria for European Structured Finance Transactions (30 June 2023),
https://dbrs.morningstar.com/research/416730
-- Master European Structured Finance Surveillance Methodology (7 March 2024),
https://dbrs.morningstar.com/research/429051
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023),
https://dbrs.morningstar.com/research/420572
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024), https://dbrs.morningstar.com/research/427030

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

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