DBRS Morningstar Assigns Provisional Ratings to Santander Consumer Spain Auto 2019-1 FT

DBRS Ratings GmbH (DBRS Morningstar) assigned the following provisional ratings to the notes to be issued by Santander Consumer Spain Auto 2019-1 FT (the Issuer):

-- EUR 440.0 million Series A Notes (the Series A Notes) rated AA (high) (sf)
-- EUR 57.7 million Series B Notes (the Series B Notes) rated AA (sf)
-- EUR 27.8 million Series C Notes (the Series C Notes) rated A (low) (sf)
-- EUR 10.0 million Series D Notes (the Series D Notes; together with the Series A Notes, Series B Notes and Series C Notes, the Rated Notes) rated BBB (sf)

The transaction is a cash flow securitisation collateralised by a portfolio of auto loans originated by Santander Consumer E.F.C., S.A. (SC EFC) to private individuals and legal entities to finance the purchase of new and used vehicles in the Kingdom of Spain. The Issuer will use the proceeds of the Rated Notes, of the Series E notes and part of the proceeds of the Series F notes to purchase the EUR 550 million loan portfolio. The remainder of the Series F notes’ proceeds will fund the EUR 5.5 million cash reserve. SC EFC will service the portfolio. The fund is managed by Santander de Titulización, SGFT. As at 16 September 2019, the transaction’s provisional portfolio included 52,559 loans to 52,398 obligors, totalling EUR 612.9 million.

The rating on the Series A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal maturity date in December 2035. The ratings on the Series B Notes, Series C Notes and Series D Notes address the ultimate payment of interest and principal on or before the legal maturity date in December 2035.

Interest and principal (once the revolving period has ended) payments on the Notes will be made quarterly on the 20th of March, June, September and December, with the first payment date on 20 December 2019. The Series A Notes and the Series B Notes will pay a floating interest rate equal to three-month Euribor plus a specific margin. The Series C Notes, the Series D Notes, the Series E Notes and the Series F Notes will pay a fixed interest rate. The transaction will include two swap agreements to mitigate the interest rate risk of the Series A and Series B Notes.
The ratings will be finalised upon receipt of an executed version of the governing transaction documents. To the extent that the documents and information provided to DBRS Morningstar to date differ from the executed version of the governing transaction documents, DBRS Morningstar may assign different final ratings to the Rated Notes.

The ratings are based on DBRS Morningstar’s review of the following analytical considerations:

-- The transaction capital structure, including the form and sufficiency of available credit enhancement.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested.
-- The Originator/Servicer’s capabilities with respect to originations, underwriting and servicing.
-- DBRS Morningstar conducted an operational risk review at the Santander Consumer E.F.C, S.A. premises and deems it to be an acceptable servicer.
-- The transaction parties’ financial strength with regard to their respective roles.
-- DBRS Morningstar’s sovereign rating of the Kingdom of Spain, currently “A” with a Positive trend.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.

The transaction structure was analysed in Intex DealMaker considering the default rates at which the Rated Notes did not return all specified cash flows.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is “Rating European Consumer and Commercial Asset-Backed Securitisations.”

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. Due to the inclusion of a revolving period in the transaction, the analysis is based on the worst-case replenishment criteria set forth in the transaction legal documents.

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 “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include the Originator, SC EFC, the Issuer and Santander de Titulización S.G.F.T. S.A.

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

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.

These ratings concern a newly issued financial instrument. These are the first DBRS Morningstar ratings on this financial instrument.

Information regarding DBRS Morningstar 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 Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

Expected default rate of 4.48%: a 25% and 50% increase.
Expected loss given default (LGD) of 64.25%: a 25% and 50% increase
Scenario 1: A 25% increase in the expected default rate.
Scenario 2: A 50% increase in the expected default rate.
Scenario 3: A 25% increase in the expected LGD.
Scenario 4: A 25% increase in the expected default rate and 25% increase in the expected LGD.
Scenario 5: A 50% increase in the expected default rate and 25% increase in the expected LGD.
Scenario 6: A 50% increase in the expected LGD.
Scenario 7: A 25% increase in the expected default rate and 50% increase in the expected LGD.
Scenario 8: A 50% increase in the expected default rate and 50% increase in the expected LGD.

DBRS Morningstar concludes that the expected ratings under the eight stress scenarios are:
-- Series A Notes: AAA (sf), AA (high) (sf), AAA (sf), AA (sf), AA (low) (sf), AA (high) (sf), AA (sf), A (high) (sf).
-- Series B Notes: A (high) (sf), A (sf), A (high) (sf), A (low) (sf), BBB (high) (sf), A (low) (sf), BBB (high) (sf), BBB (sf).
-- Series C Notes; BBB (high) (sf), BBB (sf), BBB (sf), BB (sf), BB (low) (sf), BB (low) (sf), B (sf), B (low) (sf).
-- Series D Notes: BB (high) (sf), BB (low) (sf), BB (low) (sf), B (sf), in the rest of scenarios, there is no rating on the Series D Notes.

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.

Ratings assigned by DBRS Ratings GmbH, Sucursal en España are subject to EU and US regulations only.

Lead Analyst: Maria Lopez, Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 8 October 2019

DBRS Ratings GmbH, Sucursal en España
Calle del Pinar, 5
28006 Madrid
Spain

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
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.

--Rating European Consumer and Commercial Asset-Backed Securitisations
--Legal Criteria for European Structured Finance Transactions
--Operational Risk Assessment for European Structured Finance Servicers
--Operational Risk Assessment for European Structured Finance Originators
--Interest Rate Stresses 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: http://www.dbrs.com/research/278375.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.