DBRS Ratings GmbH (DBRS) took rating actions on the Notes issued by FT PYMES Santander 13 (the Issuer) as follows:
-- Series A Notes upgraded to A (high) (sf) from A (sf)
-- Series B Notes upgraded to B (high) (sf) from CCC (high) (sf)
-- Series C Notes confirmed at C (sf)
The rating of the Series A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date. The ratings of the Series B and C 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 transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies and defaults, as of the November 2018 payment date.
-- Portfolio default rates, recovery rates and expected loss assumptions for the remaining collateral pool.
-- The credit enhancement (CE) available to the Series A and Series B Notes to cover the expected losses at their respective rating levels.
The Series C Notes were issued for the purpose of funding the reserve fund and are in the first loss position and, as such, are highly likely to default.
Given the characteristics of the Series C Notes as defined in the transaction documents, the default most likely would only be recognised at the maturity or early termination of the transaction.
The Issuer is a cash flow securitisation collateralised by a portfolio of bank loans originated and serviced by Banco Santander S.A. (Santander), to self-employed individuals and small and medium-sized enterprises (SMEs) based in Spain.
The portfolio is performing within DBRS’s expectations. As of November 2018, the 90+ delinquency ratio was at 0.67% and the cumulative default ratio was at 0.06%.
DBRS conducted a loan-by-loan analysis on the remaining pool and updated its default rate and recovery assumptions. The base case probability of default (PD) has been maintained at 3.6%.
The CE available to Series B and C Notes continues to increase as the transaction deleverages. The Series C Notes funded the Reserve Fund and hence do not benefit from CE. The CE consist of the overcollateralisation provided by the outstanding collateral portfolio and include the Reserve Fund. As of the November 2018 payment date, the CE available to the Series A Notes and Series B Notes was 35.0% and 8.1%, respectively.
Santander acts as the Account Bank provider for the transaction. Based on the DBRS’s Long Term Issuer Rating of Santander at A (high), DBRS considers the risk arising from the exposure to Santander to be consistent with the rating assigned to the Series A Notes, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology. Considering the replacement triggers, the A (high) rating of the Series A Notes is not fully delinked from the creditworthiness of the Account Bank. DBRS notes that a downgrade of the Account Bank Long Term Issuer Rating by one notch, ceteris paribus, would likely lead to a downgrade of the Series A Notes to A (sf).
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is: “Rating CLOs Backed by Loans to European SMEs.”
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 rating action.
Other methodologies referenced in this transaction are listed at the end of this press release.
These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.
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 Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/333487/rating-sovereign-governments.pdf.
The sources of data and information used for these ratings include reports and information provided by the management company Santander de Titulización SGFT, SA and loan-level data from the European DataWarehouse GmbH.
DBRS did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating, DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.
DBRS does not audit or independently verify the data or information it receives in connection with the rating process.
The last rating action on this transaction took place on 24 January 2018, when DBRS finalised the ratings of the Series A, Series B and Series C Notes at A (sf), CCC (high) (sf) and C (sf), respectively.
The lead analyst responsibilities for this transaction have been transferred to Alfonso Candelas.
Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.
To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):
-- PD Rates Used: Base case PD of 3.6%, a 10% increase of the base case and a 20% increase of the base case PD.
-- Recovery Rates Used: Base case recovery rates of 32.1% at the A (high) (sf) stress level and 37.8% at the B (high) (sf) stress level for the Series A Notes and Series B Notes, respectively.
-- Account Bank Rating: A one notch downgrade to Santander as the Account Bank Provider.
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 Series A Notes at A (high) (sf) and a downgrade of the Series B Notes to CCC (high) (sf). A scenario combining both an increase in the base case PD by 10% and a decrease in the base case recovery rate by 10%, ceteris paribus, would lead to a confirmation of the Series A Notes at A (high) (sf) and a downgrade of the Series B Notes to B (low) (sf).
A hypothetical downgrade of the Account Bank Long Term Issuer Rating by one notch, ceteris paribus, would likely lead to a downgrade of the Series A Notes to A (sf), given the large transaction exposure to Santander, and to a confirmation of the Series B Notes at B (high) (sf).
The ratings on the Series C Notes would not be affected by a change in the PD, LGD or Account Bank rating.
For further information on DBRS 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.
Ratings assigned by DBRS Ratings GmbH are subject to EU and US regulations only.
Lead Analyst: Alfonso Candelas, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 19 January 2018
DBRS Ratings GmbH
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60311 Frankfurt am Main Germany
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259
The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.
-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Rating CLOs Backed by Loans to European SMEs
-- Rating CLOs and CDOs of Large Corporate Credit
-- European RMBS Insight Methodology
-- European RMBS Insight: Spanish Addendum
-- Operational Risk Assessment for European Structured Finance Servicers
-- Interest Rate Stresses for European Structured Finance Transactions
-- Cash Flow Assumptions for Corporate Credit Securitizations
A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.
For more information on this credit or on this industry, visit www.dbrs.com or contact us at email@example.com.