DBRS Morningstar Takes Rating Actions on the Notes Issued by FT Santander Consumo 2

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the notes issued by FT Santander Consumo 2 (the issuer):

-- Class A confirmed at AA (sf)
-- Class B upgraded to AA (sf) from A (sf)
-- Class C confirmed at BBB (sf)
-- Class D confirmed at BB (sf)
-- Class E confirmed at B (sf)

The ratings on the Class A, Class B, Class C, Class D and Class E notes (the notes) address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in April 2031.

The rating actions follow an annual review of the transaction and are based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies, defaults and losses as of the October 2019 payment date;
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables;
-- Current available credit enhancement to the notes to cover the expected losses at their respective rating levels.

The issuer is a consumer loans securitisation that closed on 9 December 2016. The notes are backed by receivables related to consumer loan contracts granted by Banco Santander S.A. (Santander) to individuals residing in Spain. Santander is also the servicer of the transaction, which is managed by Santander de Titulización S.G.F.T. S.A. The transaction also had a 28-month revolving period, which ended on the April 2019 payment date (inclusive).

DBRS Morningstar has been informed that the transaction will be unwound on the January 2020 payment date.

PORTFOLIO PERFORMANCE

The portfolio is performing within DBRS Morningstar’s initial expectations. As of October 2019, loans that were two to three months in arrears represented 0.3% of the current outstanding portfolio balance, unchanged from October 2018. The 90+ delinquency ratio was 1.5%, up from 1.4% in October 2018. The cumulative default ratio stood at 1.4% of the initial outstanding portfolio balance.

PORTFOLIO ASSUMPTIONS

DBRS Morningstar conducted a loan-by-loan analysis of the outstanding pool of receivables and has updated its base case PD and LGD assumptions to 8.3% and 54.4%, respectively.

CREDIT ENHANCEMENT

Credit enhancement available to the rated notes is provided by the overcollateralisation of the outstanding portfolio, including the reserve fund. As of the October 2019 payment date, credit enhancement to the Class A, Class B, Class C, Class D and Class E notes was 21.5%, 14.8%, 8.1%, 5.5% and 3.4%, respectively, up from 16.2%, 11.3%, 6.3%, 4.4% and 2.9%, respectively, as at the October 2018 payment date.

The reserve fund, which is currently not amortising because of the breach of the 90+ arrears reserve fund trigger, is at its target level of EUR 15.0 million. The reserve is available to cover senior fees, expenses, missed interest payments and principal shortfalls on the notes.

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

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology”. DBRS Morningstar 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 “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 investor reports provided by Santander de Titulización S.G.F.T. S.A. and loan-level data provided by the European DataWarehouse GmbH.

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

At the time of the initial rating, 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.

The last rating action on this transaction took place on 6 December 2018, when DBRS Morningstar confirmed the ratings of the Class A, Class B, Class C, Class D and Class E notes at AA (sf), A (sf), BBB (sf), BB (sf) and B (sf), respectively, and upgraded rating of the Class F notes to BB (sf) from CCC (high) (sf).

The lead analyst responsibilities for this transaction have been transferred to Daniele Canestrari.
Information regarding DBRS Morningstar 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 Morningstar considered the following stress scenarios as compared with the parameters used to determine the rating (the Base Case):

-- DBRS Morningstar 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 8.3% and 54.4%, 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. Taking the Class A notes as example, if the LGD increases by 50%, the rating of the Class A notes would be expected to fall to AA (low) (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A notes would be expected to fall to AA (low) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A notes would be expected to fall to A (low) (sf).

Class A Risk Sensitivity:

-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)
Class B Risk Sensitivity:

-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of A (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf)

Class C Risk Sensitivity:

-- 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in LGD, expected rating of B (high) (sf)
-- 25% increase in PD, expected rating of BB (high) (sf)
-- 50% increase in PD, expected rating of B (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of B (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of B (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of B (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of CCC (sf)

Class D Risk Sensitivity:

-- 25% increase in LGD, expected rating of B (low) (sf)
-- 50% increase in LGD, expected rating of CC (sf)
-- 25% increase in PD, expected rating of B (sf)
-- 50% increase in PD, expected rating of CCC (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of CCC (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of CC (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of CC (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of CC (sf)

Class E Risk Sensitivity:

-- 25% increase in LGD, expected rating of CC (sf)
-- 50% increase in LGD, expected rating of CC (sf)
-- 25% increase in PD, expected rating of CCC (sf)
-- 50% increase in PD, expected rating of CC (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of CC (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of C (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of C (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of C (sf)

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 are subject to EU and US regulations only.

Lead Analyst: Daniele Canestrari, Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 9 December 2016

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.

-- 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

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.