DBRS Assigns Final Ratings to FTA PYMES SANTANDER 7

DBRS Ratings Limited (“DBRS”) has today assigned final ratings to the Notes issued by FTA PYMES SANTANDER 7 (the “Issuer”), as follows:

EUR 1,360 million Series A Notes: A (high) (sf)
EUR 340 million Series B Notes: BB (high) (sf)
EUR 340 million Series C Notes: C (sf)

The transaction is a cash flow securitisation collateralised by a portfolio of bank loans and credit lines (together, the “Credit Rights”) originated by Banco Santander S.A. (“Santander”) to self-employed individuals and small and medium-sized enterprises (“SMEs”) based in Spain. As of 25 November 2013, the transaction’s final portfolio included 24,097 Credit Rights to 22,831 obligors, totaling EUR 1,700 million.

The rating on the Series A Notes addresses the timely payment of interest and the ultimate payment of principal payable on or before the Legal Maturity Date in July 2036. The ratings on the Series B and Series C Notes address the ultimate payment of interest and the ultimate payment of principal payable on or before the Legal Maturity Date in July 2036.

The portfolio exhibits low obligor concentration. The top obligor and the largest ten obligor groups represent 0.89% and 8.05% of the outstanding balance, respectively. The pool exhibits low industry concentration. The top three industries based on the DBRS Industry classification are “Building and Development” (14.44% of the pool balance), “Food Products” (12.24%), and “Business Equipment & Services” (7.81%). The portfolio also contains Credit Rights granted to self-employed individuals and entrepreneurs for which no industry sector information was provided. Credit Rights to self-employed individuals and entrepreneur represent 11.32% of the pool balance. The top three regions are Catalonia, Madrid, and Andalusia, representing approximately 22.12%, 19.48%, and 11.26%, of the portfolio balance, respectively.

As of 25 November 2013, credit lines represented 44.34% of the portfolio’s outstanding balance. This exposure to the credit lines could increase by an additional EUR 430.2 million if the clients use the credit lines to their maximum limits. Any future drawing on the credit lines would be funded firstly through the Principal Proceeds available on the Reserve Fund’s accounts. If the Principal Proceeds are insufficient, the Reserve Fund (the “Fund”) can draw on a liquidity line provided by Banco Santander, S.A. The repayment of the liquidity line is senior to the payment of the Series A and Series B Notes’ principal in the Priority of Payments. Future drawings on the credit lines may lead to an increase of the portfolio balance and result in the dilution of the credit enhancement available. This risk is partly mitigated by the short weighted average life of the credit lines and was taken into consideration in the DBRS analysis.

As of 25 November 2013, the portfolio contained 188 credit lines that were not included on the portfolio dated 23 October 2013 that was used in the audit report and which DBRS did not consider for its analysis. These credit lines represented 0.59% of the portfolio’s outstanding balance. Santander will repurchase these credit lines at par, which amount will be deposited in the Treasury Account of the Transaction and will be available to amortise the notes on the first payment date.

These ratings are based upon DBRS’s review of the following items:

• The transaction structure, the form, and sufficiency of available credit enhancement, the portfolio characteristics.
-- At closing, the Series A Notes benefit from a total credit enhancement of 40%, which DBRS considers to be sufficient to support the A (high) (sf) rating. The Series B Notes benefit from a credit enhancement of 20%, which DBRS considers to be sufficient to support the BB (high) (sf) rating. Credit enhancement is provided by subordination and the Reserve Fund. In addition, the Series A and Series B Notes also benefit from available excess spread.
-- The Series C Notes have been issued for the purpose of funding the EUR 340 million Reserve Fund.
-- The Reserve Fund can start to amortise after the first two years if certain conditions – relating to the performance of the portfolio and deleveraging of the transaction – are met. The Reserve Fund cannot amortise below EUR 170 million.
• The transaction parties’ financial strength and capabilities to perform their respective duties and the quality of origination, underwriting, and servicing practices.
• An assessment of the operational capabilities of key transaction participants.
• The ability of transaction to withstand stressed cash flow assumptions and repay investors according to the approved terms. Interest and principal payments on the Series A Notes will be made quarterly on the 15th day of January, April, July and October, with the first Payment Date on 15 January 2014.
• The soundness of the legal structure and the presence of legal opinions which address the true sale of the assets to the trust and the non-consolidation of the special purpose vehicle, as well as consistency with the DBRS “Legal Criteria for European Structured Finance Transactions”.

DBRS determined these ratings as follows, as per the principal methodology specified below:
• The annualised probability of default (“PD”) for the originator was determined using the historical performance information supplied. For this transaction DBRS assumed a PD of 5.12%.
• The assumed weighted average life (“WAL”) of the portfolio was 1.53 years.
• The PD and WAL were used in the DBRS Diversity Model to generate the hurdle rate for the target ratings.
• The recovery rate was determined by considering the market value declines (“MVDs”) for Spain, the security level and type of the collateral. For the Series A Notes, DBRS applied an average recovery rate of 18%. For the Series B Notes, DBRS applied an average recovery rate of 21.5%.
• The break even rates for the interest rate stresses and default timings were determined using the DBRS cash flow model.
• The rating of the Series C Notes is based upon DBRS’s review of the following considerations:
-- The Series C Notes 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.

Notes:
All figures are in Euros unless otherwise noted.

The principal methodology applicable is “Rating CLOs Backed by Loans to European Small and Medium Sized Enterprises (SMEs)”. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

All DBRS methodologies can be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.

For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisation in the EURO Area” at: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

The sources of information used for this rating include the parties involved in the rating, including but not limited to, Banco Santander: S.A, the Issuer and Santander de Titulización S.G.F.T; S.A. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS determined key inputs used in our analysis based on historical performance data provided for the originator and servicer as well as analysis of the current economic environment. Further information on DBRS’s analysis of this transaction will be available in a rating report on http://www.dbrs.com or by contacting us at info@dbrs.com.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

This rating concerns a newly issued financial instrument. This is the first DBRS rating on this financial instrument.

Information regarding DBRS ratings, including definitions, policies and methodologies is available on www.dbrs.com.

To assess the impact of the changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):
• Probability of Default Rates Used: Base Case PD of 5.12%, a 10% increase of the base case and a 20% increase of the base case PD.
• Recovery Rates Used: Base Case Recovery Rate of 18.0% at the A (high) (sf) stress level (and for the Class B notes a base case Recovery rate of 21.5% at the BB (high) (sf) stress level), a 10% and 20% decrease in the base case Recovery Rates.

DBRS concludes that a hypothetical increase of the base case PD by 20% or a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would each by themselves, not cause a change in the rating of the Series A Notes. A scenario combining both an increase in the PD by 10% and a decrease in the recovery rate by 10% would lead to a downgrade of the Series A Notes to A (sf).

Regarding the Series B, a hypothetical increase of the base case PD by 20% would lead to a downgrade of the Series B Notes to BB (sf) while a hypothetical decrease of the recovery rate by 20% would not cause a change in the rating. A scenario combining both an increase in the PD by 10% and a decrease in the recovery rate by 10% would lead to a downgrade of the Series B Notes to BB (low) (sf).

For further information on DBRS’s historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository see:
http://cerep.esma.europa.eu/cerepweb/statistics/defaults.xhtml.

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

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: Carlos Silva
Initial Rating Date: 14 November 2013
Initial Rating Committee Chair: Jerry van Koolbergen

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960

The rating methodologies and criteria used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies

“Rating CLOs Backed by Loans to European Small and Medium Sized Enterprises (SMEs)”
“Legal Criteria for European Structured Finance Transactions”
“Unified Interest Rate Model for U.S. and European Structured Credit”
“Cash Flow Assumptions for Corporate Credit Securitizations”
“Rating Methodology for CLOs and CDOs of Large Corporate Credit”
“Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda”