DBRS Ratings GmbH (DBRS Morningstar) assigned provisional ratings of A (high) (sf) and CCC (sf) to the Class A and Class B notes, respectively, to be issued by FT RMBS Santander 6 (the Issuer), a securitisation fund incorporated under Spanish securitisation law.
The rating on the Class A notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in February 2063, while the rating on the Class B notes addresses the ultimate payment of interest and principal on or before the legal final maturity date.
The notes to be issued will fund the purchase of a portfolio of first-lien residential mortgage loans originated by Santander S.A. (49.7%), Banco Popular Español (44.7%), and Banesto (5.6%). The mortgage loans are secured over residential properties located in Spain. Santander de Titulización S.A. (the Management Company) manages the transaction, with Santander S.A. acting as the servicer of the portfolio. The transaction has no backup servicer.
DBRS Morningstar was provided with the provisional portfolio amounting to EUR 4.6 billion as of 19 June 2020, which consisted of 32,875 loans extended to 31,188 borrowers. The weighted-average (WA) current loan-to-value (LTV) ratio stands at 96.0% whereas the WA current indexed LTV calculated by DBRS Morningstar is 92.9% with a WA seasoning of 5.3 years. Almost all the loans included in the portfolio (96.8%) are floating-rate loans mainly linked to the 12-month Euribor, and the remaining 3.2% of the portfolio are fixed-rate loans. The notes pay a floating rate of interest linked to three-month Euribor. Of the loans in the provisional portfolio, 3.9% were granted a Government moratorium, with interest and principal payments suspended for a period of up to three months. A further 11.9% of the loans were granted a Sector moratorium, where Spanish financial institutions agreed to grant principal payment holidays of up to 12 months. The current WA interest rate of the portfolio is 0.94% and the WA margin of the floating-rate loans is 1.1%. The repayment type for all the loans in the portfolio is French amortisation.
The mortgage loan portfolio is distributed amongst the Spanish regions of Madrid (26.9% by current balance), Andalusia (17.9%), and Catalonia (13.0%). The majority of the mortgage loans in the asset portfolio (86.4%) were granted for the purchase of the main residence of the borrower, with a further 7.9% granted for the purchase of second/holiday homes. The remaining 5.7% of the loans were granted for renovation or other purposes, and all loans are backed by a residential property. Of the loans in the portfolio, 14.4% were granted to self-employed borrowers, and a further 14.2% were granted to employees of the Seller. At origination, no borrower was unemployed. The provisional pool includes 9.4% of the loans granted to foreign borrowers resident in Spain. As of 19 June 2020, no loans in the portfolio were in arrears for more than three months.
The Servicer is allowed to grant loan renegotiations for margin compressions, interest rate type switch, and extension of maturity, subject to certain limits. DBRS Morningstar factored in these loan modifications in its cash flow analysis.
The Class A notes benefit from the EUR 720.0 million (10.5%) subordination of the Class B notes plus a EUR 225.0 million (5.0% of the outstanding balance of the Class A and Class B notes) reserve fund, which is available to cover senior expenses as well as interest and principal payments of the rated notes until they are paid in full. The reserve fund will be funded at closing via a subordinated loan and will start amortising after three years since closing, up to a floor of EUR 112.5 million. The reserve fund will not amortise if certain performance triggers are breached, if it was used on any payment date and is under its target level, or until it reaches 10% of the outstanding balance of the Class A and Class B notes. The Class A notes will benefit from full sequential amortisation, whereas principal on the Class B notes will not be paid until the Class A notes have been redeemed in full. Additionally, the Class A principal will be senior to the Class B interest payments in the priority of payments at all times.
The transaction’s account bank agreement and respective replacement trigger require Santander, acting as the transaction account bank, to find (1) a replacement account bank within 60 days or (2) an account bank guarantor upon loss of the applicable account bank rating. The DBRS Morningstar Critical Obligations Rating (COR) of Santander is AA (low), while DBRS Morningstar’s Long-Term Senior Debt and Issuer rating on Santander is at A (high) (as of the date of this press release). The account bank applicable rating is the higher of one notch below the Santander COR and Santander`s Long-Term Senior Debt rating.
DBRS Morningstar based its ratings on the following analytical considerations:
-- The transaction’s capital structure as well as form and sufficiency of available credit enhancement to support DBRS Morningstar’s projected cumulative losses under various stressed scenarios.
-- The credit quality of the portfolio and DBRS Morningstar’s qualitative assessment of Santander, Banco Popular, and Banesto’s capabilities with regard to originations, underwriting, and servicing.
-- DBRS Morningstar’s estimated stress-level probability of default (PD), loss given default (LGD), and expected loss levels on the mortgage portfolio, which were used as inputs into the cash flow engine. The mortgage portfolio was analysed in accordance with DBRS Morningstar’s “European RMBS Insight Methodology” and the “European RMBS Insight: Spanish Addendum”.
-- The transaction’s ability to withstand stressed cash flow assumptions and repay the noteholders according to the terms and conditions of the notes and the transaction documents. The transaction cash flows were analysed using Intex DealMaker. DBRS Morningstar considered additional sensitivity scenarios of 0% conditional repayment rate stress.
-- The transaction parties’ financial strength to fulfil their respective roles.
-- The transaction’s legal structure and its consistency with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology as well as the presence of the appropriate legal opinions that address the assignment of the assets to the Issuer.
-- DBRS Morningstar’s sovereign rating on the Kingdom of Spain of “A” with a Stable trend as of the date of this press release.
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 payment holidays and delinquencies may arise in the coming months for many RMBS, 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. For this transaction DBRS Morningstar assumed loans previously restructured as being in arrears and a moderate decline in residential property prices.
On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were updated on 1 June 2020. For details see the following commentaries: https://www.dbrsmorningstar.com/research/361867/global-macroeconomic-scenarios-june-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.
On 5 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect the DBRS Morningstar-rated RMBS transactions in Europe. For more details please see https://www.dbrsmorningstar.com/research/360599/european-rmbs-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.
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.
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 methodologies applicable to the ratings are: “European RMBS Insight Methodology” (2 April 2020) and the “European RMBS Insight: Spanish Addendum” (10 July 2019).
DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.
Other methodologies referenced in this transaction are listed at the end of this press release.
These may be found at: https://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 this rating include Santander de Titulización. This includes a loan-by-loan data tape as of 19 June 2020. In addition, DBRS Morningstar received quarterly static performance data for mortgage loans originated by Santander with OLTV greater than 80%. The set of data is 90 days arrears net of recoveries for the period Q1 2004 to Q4 2019.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
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.
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.dbrsmorningstar.com.
To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the ratings (the Base Case):
In respect of the Class A notes, the PD and LGD at the A (high) (sf) stress scenario of 37.7% and 57.4%, respectively, were stressed assuming a 25% and 50% increase on both the PD and LGD.
DBRS Morningstar concludes the following impact on the Class A notes:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to BBB (high) (sf)
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to BB (high) (sf)
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf)
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (low) (sf)
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high) (sf)
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BB (high) (sf)
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BB (high) (sf)
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BB (low) (sf)
In respect of the Class B notes, the PD and LGD at the CCC (sf) stress scenario of 10.4% and 40.5%, respectively, were stressed assuming a 25% and 50% increase on both the PD and LGD.
DBRS Morningstar concludes the following impact on the Class B notes:
-- 25% increase of the PD, ceteris paribus would not lead to a downgrade of the notes
-- 50% increase of the PD, ceteris paribus would not lead to a downgrade of the notes
-- 25% increase of the LGD, ceteris paribus would not lead to a downgrade of the notes
-- 50% increase of the LGD, ceteris paribus would not lead to a downgrade of the notes
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade below CCC (sf)
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade below CCC (sf) (sf)
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade below CCC (sf) (sf)
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade below CCC (sf) (sf)
For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.
Ratings assigned by DBRS Ratings GmbH are subject to EU and U.S. regulations only.
Lead Analyst: Covadonga Aybar, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 9 July 2020
DBRS Ratings GmbH,
Sucursal en España
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Tel. +34 (91) 903 6500
DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
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The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.
-- European RMBS Insight Methodology (2 April 2020) and European RMBS Insight Model v 188.8.131.52. https://www.dbrsmorningstar.com/research/359192/european-rmbs-insight-methodology.
-- European RMBS Insight: Spanish Addendum” (10 July 2019)
-- Legal Criteria for European Structured Finance Transactions (11 September 2019) https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- 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.
-- Operational Risk Assessment for European Structured Finance Originators (28 February 2020) https://www.dbrsmorningstar.com/research/357430/operational-risk-assessment-for-european-structured-finance-originators.
-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2019) https://www.dbrsmorningstar.com/research/351557/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: https://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.
This press release was amended on 15 July 2020 to correct a typo that stated the provisional portfolio amounted to EUR 4.6 million instead of EUR 4.6 billion.