DBRS Morningstar Finalises Provisional Credit Ratings on Santander Consumer Spain Auto 2023-1 FT

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional credit ratings on the following classes of notes (the Rated Notes) issued by Santander Consumer Spain Auto 2023-1 FT (the Issuer):

-- Class A Notes at AA (sf)
-- Class B Notes at A (high) (sf)
-- Class C Notes at A (sf)
-- Class D Notes at BBB (high) (sf)
-- Class E Notes at BB (sf)

DBRS Morningstar did not assign a credit rating to the Class F Notes (together with the Rated Notes, the Notes).

The finalised credit rating on the Class E Notes is two notches higher than the provisional credit rating DBRS Morningstar assigned as a result of the lower fixed swap rate and overall margins of the Rated Notes, which improved the cash flow analysis on the Class E Notes in its credit rating stress scenario.

The credit rating on the Class A Notes addresses the timely payment of scheduled interest and the ultimate repayment of principal by the final maturity date. The credit ratings on the Class B Notes to Class E Notes address the ultimate payment of scheduled interest and the ultimate repayment of principal by the final maturity date.

CREDIT RATING RATIONALE
The Rated Notes are backed by a portfolio of approximately EUR 600 million of fixed-rate receivables related to auto loans granted by Santander Consumer Finance S.A. (SCF; the Originator or the Seller) to private individuals and corporates residing in Spain for the acquisition of new or used vehicles. SCF will also service the portfolio (the Servicer).

DBRS Morningstar based its credit ratings on a review of the following analytical considerations:
-- The transaction capital structure, including form and sufficiency of available credit enhancement;
-- Relevant credit enhancement in the form of subordination, reserve funds, and excess spread; credit enhancement levels are sufficient to support DBRS Morningstar’s projected cumulative net loss assumptions under various stressed cash flow assumptions for the Rated Notes;
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they invested.
-- SCF’s capabilities with regard to originations, underwriting, servicing, and its financial strength;
-- The transaction parties’ financial strength with regard to their respective roles;
-- The credit quality of the collateral and historical and projected performance of the Seller’s portfolio;
-- The sovereign rating on the Kingdom of Spain, currently 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.

TRANSACTION STRUCTURE
The transaction allocates payments on separate interest and principal priorities of payments and benefits from an amortising cash reserve funded at closing to an amount equal to 1.75% of the Rated Notes outstanding balance and floored at 1.35% of the Rated Notes’ initial balance. The reserve will also not amortise if it is not funded to the required level or if a subordination event occurs. The cash reserve is part of the available funds and covers senior costs, swap payments, and interests on the Rated Notes, as long as there is no interest deferral.

The transaction includes a 14-months revolving period. The repayment of the Rated Notes will start on the first amortisation payment date in March 2025 on a pro rata basis unless certain events, such as breach of performance triggers or replacement of the Servicer, occur. Under these circumstances, the principal repayment of the Rated Notes will become fully sequential, and the switch is not reversible. Interest and principal payments on the Rated Notes will be made quarterly.

All underlying contracts are fixed rate while the Notes pay a floating rate. The Notes are indexed to three-month Euribor. Interest rate risk for the Rated Notes is mitigated through an interest rate swap with an eligible counterparty.

COUNTERPARTIES
Société Générale, Sucursal en España (SG) has been appointed as the Issuer’s account bank for the transaction. DBRS Morningstar holds a private rating on SG and has concluded that it meets DBRS Morningstar’s minimum criteria to act in its capacity as account bank. The transaction documents contain downgrade provisions relating to the account bank consistent with DBRS Morningstar’s criteria.

Banco Santander S.A. (Banco Santander) has been appointed as the swap counterparty for the transaction. DBRS Morningstar’s public Long-Term Critical Obligations Rating on Banco Santander is AA (low) with a Stable trend, which meets the criteria to act in such capacity. The hedging documents contain downgrade provisions consistent with DBRS Morningstar’s criteria.

DBRS Morningstar’s credit ratings on the Rated Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related interest payments amounts and the related principal outstanding balances.

DBRS Morningstar’s credit ratings do not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar 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 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/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

DBRS Morningstar analysed the transaction structure in Intex Dealmaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is Rating European Consumer and Commercial Asset-Backed Securitisations (19 October 2022)
https://www.dbrsmorningstar.com/research/404212/rating-european-consumer-and-commercial-asset-backed-securitisations.

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

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. Because of the inclusion of a revolving period in the transaction, the analysis considers 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 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://www.dbrsmorningstar.com/research/421590/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 .

The sources of data and information used for these credit ratings include the Originator and its agents:
-- Quarterly static default data from Q4 2017 to Q2 2023 for SCF total auto pool, split between loans granted to finance new and used vehicles.
-- Quarterly static default data from Q4 2017 to Q2 2023 for SCF auto pool with an internal regulatory PD 0-4.0% and 0-6%, split between loans granted to finance new and used vehicles.
-- Monthly static recovery data from July 2017 to June 2023 for SCF's total auto pool, split between loans granted to finance new and used vehicles.
-- Detailed stratification tables related to the asset portfolio selected by SCF as at 17 August 2023.
-- Loan-by-loan provisional portfolio selected by SCF as at 17 August 2023.
-- A theorical amortization of the provisional pool.

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

DBRS Morningstar was supplied with one or more third-party assessments. However, this did not impact the credit rating analysis.

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

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

These credit ratings concern newly issued financial instruments. These are the first DBRS Morningstar credit ratings on these financial instruments.

This is the first credit rating action since the Initial Rating Date.

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

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit rating (the Base Case):

-- Expected default rate: 8.8%
-- Expected recovery rate: 71.7%
-- Loss given default (LGD): 53.1% for AA (sf), 49.3% for A (high) (sf), 47.4% for A (sf), 43.6% for BBB (high) (sf), and 35.9% for BB (sf)

Scenario 1: 25% increase in LGD
Scenario 2: 50% increase in LGD
Scenario 3: 25% increase in PD
Scenario 4: 50% increase in PD
Scenario 5: 25% increase in PD and 25% increase in LGD
Scenario 6: 25% increase in PD and 50% increase in LGD
Scenario 7: 50% increase in PD and 25% increase in LGD
Scenario 8: 50% increase in PD and 50% increase in LGD

DBRS Morningstar concludes that the expected credit ratings under the eight stress scenarios would be:
-- Class A Notes: AA (sf), AA (low) (sf), AA (sf), A (high) (sf), A (high) (sf), A (sf), A (sf), and A (sf)
-- Class B Notes: A (high) (sf), A (sf), A (high) (sf), A (sf), A (sf), BBB (high) (sf), BBB (high) (sf), and BBB (sf)
-- Class C Notes: A (low) (sf), BBB (high) (sf), A (low) (sf), BBB (high) (sf), BBB (high) (sf), BBB (sf), BBB (sf), and BB (high) (sf)
-- Class D Notes: BBB (sf), BBB (low) (sf), BBB (sf), BBB (low) (sf), BBB (low) (sf), BB (high) (sf), BB (high) (sf), and BB (sf)
-- Class E Notes: BB (low) (sf), B (sf), BB (low) (sf), B (high) (sf), B (sf), B (low) (sf), B (low) (sf), and below B (low) (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://registers.esma.europa.eu/cerep-publication. For further information on DBRS Morningstar 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: Guglielmo Panizza, Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 14 September 2023

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.

Other methodologies referenced in this transaction are listed below:
• Legal Criteria for European Structured Finance Transactions (30 June 2023),
https://www.dbrsmorningstar.com/research/416730/legal-criteria-for-european-structured-finance-transactions.
• Rating European Structured Finance Transactions Methodology (6 October 2023),
https://www.dbrsmorningstar.com/research/421599/rating-european-structured-finance-transactions-methodology.
• Operational Risk Assessment for European Structured Finance Servicers (15 September 2023),
https://www.dbrsmorningstar.com/research/420572/operational-risk-assessment-for-european-structured-finance-servicers.
• Operational Risk Assessment for European Structured Finance Originators (15 September 2023),
https://www.dbrsmorningstar.com/research/420573/operational-risk-assessment-for-european-structured-finance-originators.
• Derivative Criteria for European Structured Finance Transactions (18 September 2023), https://www.dbrsmorningstar.com/research/420754/derivative-criteria-for-european-structured-finance-transactions
• Interest Rate Stresses for European Structured Finance Transactions (15 September 2023),
https://www.dbrsmorningstar.com/research/420602/interest-rate-stresses-for-european-structured-finance-transactions.
• DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (4 July 2023),
https://www.dbrsmorningstar.com/research/416784/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].