DBRS Ratings GmbH (DBRS) upgraded its rating on the Class A Asset-Backed Fixed Rate Securitisation Notes (Class A Notes) issued by Silk Finance No. 4 (the Issuer) to AA (sf) from A (high) (sf).
The rating addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in January 2031.
The upgrade follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults and losses as of the April 2019 payment date;
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables;
-- Current available credit enhancement (CE) to the Class A Notes to cover the expected losses at the AA (sf) rating level.
The Issuer is a Portuguese securitisation collateralised by a portfolio of vehicle loans, leases and long-term rentals granted and serviced by Banco Santander Consumer Portugal S.A. (BSCP) to individuals and companies in Portugal. The transaction closed in November 2015 and incorporated a three-year revolving period which ended on the January 2019 payment date.
As of the April 2019 payment date, loans that were 30 to 60-days delinquent represented 0.5% of the outstanding principal balance and 60 to 90-day delinquencies represented 0.2%, while delinquencies greater than 90 days represented 0.3%. Gross cumulative defaults amounted to 0.03% of the aggregate initial collateral portfolio.
DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 4.9% and 77.0%, respectively.
CE to the Class A Notes is provided by the subordination of the Class B Notes and the cash reserve. As of the April 2019 payment date, CE to the Class A Notes was 18.8%, up from 17.2% at the DBRS initial rating.
The transaction benefits from a cash reserve, which was funded at closing using the proceeds from the issuance of the Class C Notes and is available to cover senior expenses, interest payments on the Class A notes and to cure the Class A principal deficiency ledger balance. The reserve fund is currently funded to EUR 3.7 million, with a target equal to 1.21% of the outstanding Class A and Class B Notes balance, subject to a floor of EUR 1.83 million and a maximum balance of EUR 3.7 million.
BNP Paribas Securities Services SCA, London Branch (BNPPSS London) acts as the account bank for the transaction. Based on the DBRS private rating of BNPPSS London, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Class A Notes, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.
The transaction structure was analysed in Intex DealMaker.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the rating is the “Master European Structured Finance Surveillance Methodology”.
DBRS 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.
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 this rating include investor reports provided by Deutsche Bank AG, London Branch (the Transaction Manager), servicer reports provided by BSCP and loan-level data provided by 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 purpose of providing this rating 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 9 August 2018, when DBRS confirmed the rating of the Class A Notes at A (high) (sf).
The lead analyst responsibilities for this transaction have been transferred to Daniel Rakhamimov.
Information regarding DBRS ratings, including definitions, policies and methodologies is available at www.dbrs.com.
To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with the parameters used to determine the rating (the Base Case):
-- DBRS 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.
-- The base case PD and LGD of the current pool of loans for the Issuer are 4.9% and 77.0%, 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 Class A Notes would be expected to remain at AA (sf), ceteris paribus. If the PD increases by 50%, the rating of the Class A Notes would be expected to remain at AA (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to decrease to A (high) (sf), ceteris paribus.
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (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 A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
For further information on DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see:
Ratings assigned by DBRS Ratings GmbH are subject to EU and US regulations only.
Lead Analyst: Daniel Rakhamimov, Senior Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 17 November 2015
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Geschäftsführer: Detlef Scholz
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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
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Interest Rate Stresses for European Structured Finance Transactions
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 firstname.lastname@example.org.