DBRS Morningstar Takes Rating Actions on FT Santander Consumer Spain Auto 2016-1

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the notes issued by FT Santander Consumer Spain Auto 2016-1 (the Issuer):

-- Series A confirmed at AA (sf)
-- Series B upgraded to AA (sf) from A (high) (sf)
-- Series C upgraded to A (high) (sf) from BBB (high) (sf)
-- Series D upgraded to A (low) (sf) from BB (high) (sf)

The rating on the Series A notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in April 2032. The ratings on the Series B, Series C, and Series D 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, defaults, and losses;
-- 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 securitisation of Spanish auto loan receivables granted and serviced by Santander Consumer E.F.C., S.A. (SC, the Servicer, or the Originator), a subsidiary of Santander Consumer Finance, S.A. (SCF). As of the January 2020 payment date, the EUR 614.0 million portfolio consisted of loans provided to both individual (96.5%) and commercial (3.5%) borrowers, used to finance the purchase of both new (74.7%) and used (25.3%) vehicles. The transaction closed in March 2016 and had a 40-month revolving period, which ended on the July 2019 payment date.

PORTFOLIO PERFORMANCE
As of the January 2020 payment date, one-to two-month and two-to three-month delinquencies represented 1.1% and 0.9% of the portfolio balance, respectively, while loans more than three months delinquent represented 1.5%. Gross cumulative defaults amounted to 0.6% of the aggregate initial portfolio balance, with cumulative recoveries of 18.5% to date.

PORTFOLIO ASSUMPTIONS
Following the end of the revolving period, DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base case PD and LGD assumptions to 3.7% and 57.5%, respectively, based on applicable updated performance data available from the Originator.

CREDIT ENHANCEMENT
The subordination of the respective junior notes and the cash reserve provide credit enhancement to the rated notes. As of the January 2020 payment date, credit enhancement to the Series A Notes increased from 17.0% 12 months ago and at the DBRS Morningstar initial rating to 21.2%, following the end of the revolving period in July 2019 and start of amortisation; credit enhancement to the Series B notes increased from 13.0% to 16.2%; credit enhancement to the Series C notes increased from 7.5% to 9.3%; credit enhancement to the Series D notes increased from 4.5% to 5.6%; and credit enhancement to the Series E notes increased from 2.0% to 2.5%.

The transaction benefits from credit support through a EUR 15.3 million nonamortising cash reserve, available to cover senior expenses, interest, and principal payments due on the Series A through Series E notes.

To mitigate any disruptions in payments due to the replacement of the Servicer or the risk that the Servicer fails to transfer the collections to the Issuer, the transaction documents include the provision of liquidity and commingling reserves. These were unfunded at closing and will only be funded if the DBRS Morningstar rating of SC’s parent company, SCF, falls below specific thresholds as defined in the legal documentation, or ownership thresholds are crossed. These reserves continue to be unfunded, as none of the rating triggers have been breached to date.

SCF acts as the Account Bank for the transaction. Based on the DBRS Morningstar private rating of SCF, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the Account Bank to be consistent with the ratings 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. (the Management Company), loan-level data provided by the European DataWarehouse GmbH, and updated performance data available from the Originator.

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 13 February 2019, when DBRS Morningstar confirmed the ratings of the Series A, Series B, and Series C notes at AA (sf), A (high) (sf), and BBB (high) (sf), respectively, and upgraded the rating of the Series D notes to BB (high) (sf) from BB (sf).

The lead analyst responsibilities for this transaction have been transferred to Daniel Rakhamimov.

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 3.7% and 57.5%, 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 Series A notes would be expected to remain at AA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Series A notes would be expected to remain at AA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Series A notes would be expected to remain at AA (sf).

Series 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 AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)

Series B 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 AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)

Series C Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of A (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)

Series D Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD, expected rating of A (low) (sf)
-- 50% increase in PD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (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: Daniel Rakhamimov, Senior Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 10 March 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.