DBRS Ratings GmbH (DBRS Morningstar) confirmed the ratings on the bonds issued by FTA RMBS Santander 2 (the Issuer) as follows:
-- Series A Notes at AA (sf)
-- Series B Notes at BB (sf)
-- Series C Notes at C (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 February 2057. The ratings on the Series B Notes and Series C Notes address the ultimate payment of interest and principal on or before the legal final maturity date.
The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses.
-- Portfolio default rate (PD), loss given default (LGD), and expected loss assumptions on the remaining collateral portfolio.
-- Current available credit enhancement to the Series A and 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 securitisation of Spanish residential mortgage loans originated and serviced by Banco Santander, S.A. (Santander). The transaction follows Spanish securitisation law and closed in July 2014.
The portfolio is performing within DBRS Morningstar’s expectations. As of May 2020, loans two to three months in arrears represented 0.3% of the outstanding portfolio balance, up from 0.2% in May 2019. As of May 2020, the 90+ delinquency ratio was 0.6%, up from 0.4% in May 2019, and the cumulative failed loans on the original balance of the portfolio stood at 1.9%.
PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis on the remaining collateral pool of receivables and updated its base case PD and LGD assumptions to 5.3% and 27.1%, respectively.
The credit enhancement available to the Series A Notes continues to increase as the transaction deleverages, with the credit enhancement to the Series B Notes also slightly increasing. The Series C Notes funded the reserve fund at closing and do not benefit from credit enhancement. The credit enhancement consists of overcollateralisation provided by the outstanding collateral portfolio and includes the reserve fund.
As of the May 2020 payment date, credit enhancement to the Series A Notes was 42.8%, up from 38.8% as of the May 2019 payment date. Credit enhancement to the Series B Notes was 7.7%, up from 6.8% as of the May 2019 payment date.
The reserve fund is available to cover principal losses, senior fees, and interest shortfalls on the Series A and Series B Notes. As of the May 2020 payment date, the reserve fund totalled EUR 143.9 million.
Santander acts as the account bank for the transaction. Based on the account bank reference rating of Santander at A (high), which is one notch below the DBRS Morningstar Long-Term Critical Obligations Rating of AA (low), 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 rating assigned to the Series A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.
DBRS Morningstar analysed the transaction structure in Intex DealMaker.
The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many RMBS transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus.
On 16 April 2020, the DBRS Morningstar Sovereign group published its outlook on the impact to key economic indicators for the 2020-22 time frame. For details see the following commentaries: https://www.dbrsmorningstar.com/research/359679/global-macroeconomic-scenarios-implications-for-credit-ratings and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.
For more information on DBRS Morningstar considerations for European RMBS transactions and Coronavirus Disease (COVID-19), please see the following commentary: https://www.dbrsmorningstar.com/research/360599.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (22 April 2020). 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 at: http://www.dbrsmorningstar.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.dbrsmorningstar.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, SGFT, 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 not 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 30 May 2019, when DBRS Morningstar confirmed the ratings of the Series A Notes and Series C Notes at AA (sf) and C (sf) and upgraded the rating of the Series B Notes to BB (sf) from BB (low) (sf).
The lead analyst responsibilities for this transaction have been transferred to Shalva Beshia.
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies is available at www.dbrsmorningstar.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 5.3% and 27.1%, 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 still 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 BB (high) (sf)
-- 50% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD, expected rating of BB (high) (sf)
-- 50% increase in PD, expected rating of BB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of B (high) (sf)
The rating on the Series C Notes would not be affected by a change in either the PD or LGD.
For further information on DBRS Morningstar 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 U.S. regulations only.
Lead Analyst: Shalva Beshia, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 9 July 2014
DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
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.dbrsmorningstar.com/about/methodologies.
-- Master European Structured Finance Surveillance Methodology (22 April 2020), https://www.dbrsmorningstar.com/research/359884/master-european-structured-finance-surveillance-methodology
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020), https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers
-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2019),
-- European RMBS Insight Methodology (2 April 2020) and European RMBS Insight Model v 184.108.40.206.,
-- European RMBS Insight: Spanish Addendum (10 July 2019),
A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at http://www.dbrsmorningstar.com/research/278375.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at email@example.com.