DBRS Assigns Provisional Rating to RMBS Santander 1, FTA

DBRS Ratings Limited (‘DBRS’) assigns provisional ratings to the following notes issued by RMBS Santander 1, FTA:

-- AA (sf) to €962,000,000 to Class A notes
-- B (sf) to €338,000,000 to Class B notes
-- C (sf) to €195,000,000 to Class C notes

RMBS Santander 1, FTA (‘Santander 1’) is a securitisation of a portfolio of residential mortgage loans secured by properties in Spain and originated by Banco Santander S.A. At transaction closing, Santander 1 will use the proceeds of the Class A and Class B notes issuance to fund the purchase of the mortgage portfolio. The securitisation will take place in the form of a fund, in accordance with Spanish Securitisation Law.

The rating is based upon a review by DBRS of the following analytical considerations:

• Transaction’s capital structure and the form and sufficiency of available credit enhancement; The rated Class A notes benefit from 41.00% of credit enhancement in the form of the €338 million (26%) and the €195 million (15%) reserve fund, which is available to cover senior fees, interest and principal of the Class A and Class B notes. The reserve fund will be fully funded at transaction closing via the subordinated Class C notes. The Class A notes also benefit from full sequential amortisation, where principal on the Class B will not be paid until the Class A notes have redeemed in full. The Class C notes will be paid down as the reserve fund amortises.

• The mortgage portfolio consists entirely of loans where the borrower pays a variable interest rate linked to 12 month Euribor. In comparison the interest rate payable on the Class A notes is linked to 3 month Euribor. DBRS concludes that limited basis risk exists as historically 12 month Euribor has been higher than 3 month Euribor. Moreover, the reserve fund and subordinated Class B notes may also help to cover basis risk.

• The main characteristics of the portfolio include: (i) 73.20% weighted average current unindexed loan –to-value (‘WA CLTV’) and 87.38% Indexed WA CLTV (INE HPI Q4 2013); (ii) top three portfolio geographical concentrations are Andalucía, (21.47%), Madrid (17.51%) and Cataluña (17.04%); (iii) 13.32% self-employed borrowers at loan origination; (iv) 5.99% of non-national borrowers; (v) 59.26% of loans originated after the peak of the housing market in 2008 and after; (vi) 4.51% of loans originated through brokers; and (vii) 5.35% second home properties.

• 26.78% of loans have a grace period. The grace period of the portfolio is 11.23 months on a weighted average basis. 35.79% of loans were restructured since loan origination. Restructured loans consists of grace period and/or maturity extensions. There is also a portion of the portfolio that have missed payment(s). DBRS applied higher default probabilities for loans that have been restructured or shown delinquency in the past two years.

• The credit quality of the mortgages backing the notes and the ability of the servicer to perform its servicing duties. DBRS was provided with the bank’s mortgage historical performance data as well as loan level data for the mortgage portfolio. Details of estimated defaults, loss given default and expected losses for the mortgage portfolio at AA (sf), B (sf) and C (sf) stresses scenarios are highlighted below.

In accordance with the transaction documentation, the Servicer is able to grant loan modifications without the consent of the management company. To factor the possible margin deterioration into its analysis, DBRS stressed the WA spread of the collateral and applied a maturity extension to 10% of the portfolio.

• DBRS used a combination of default timing curves (front- and back-ended), rising and declining interest rates and low, mid and high prepayment scenarios in accordance with the DBRS rating methodology to stress the cash flows. Given the low prepayment level observed in Spain, currently below 5%, DBRS also tested a scenario with zero prepayments.

• The legal structure and presence of legal opinions addressing the assignment of the assets to the issuer and the consistency with the DBRS Legal Criteria for European Structured Finance Transactions.

Notes:
All figures are in Euros unless otherwise noted.

The principal methodology applicable is:
Master European Residential Mortgage-Backed Securities Rating Methodology and the Spanish Jurisdictional Addendum

Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

These 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 Securitisations in the Euro Area” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

The sources of information used for this rating include Banco Santander S.A. and their agents. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

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 are 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”):

• In respect of Class A notes and a rating category of ‘AA (sf)’, the Probability of Default (‘PD’) of 51.34%, a 25% and 50% increase on the PD.

• In respect of Class A notes and a rating category of ‘AA (sf)’, Loss Given Default (‘LGD’) of 61.44%, a 25% and 50% increase on the LGD.

• In respect of Class B notes and a rating category of ‘B (sf)’, the Probability of Default (‘PD’) of 23.09%, a 25% and 50% increase on the PD.

• In respect of Class B notes and a rating category of ‘B (sf)’, Loss Given Default (‘LGD’) of 46.56%, a 25% and 50% increase on the LGD.

• In respect of Class C notes and a rating category of ‘C (sf)’, DBRS expects the rating of Class C notes to remain at ‘C (sf)’.

DBRS concludes that for the Class A Notes:

• A hypothetical increase of the PD by 25% would lead to a downgrade of the Class A notes to A (sf).
• A hypothetical increase of the LGD by 25% would lead to maintain the rating of the Class A notes to AA (sf).

• A hypothetical increase of the PD by 50% would lead to a downgrade of the Class A notes to BBB (sf).

• A hypothetical increase of the LGD by 50% would lead to a downgrade of the Class A notes to A (sf).

• A hypothetical increase of the PD by 50% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to downgrade the Class A notes to BBB (low) (sf).

• A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to downgrade the Class A notes to BBB (low) (sf).

• A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to downgrade the Class A notes to BBB (high) (sf).

• A hypothetical increase of the PD by 50% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to downgrade the Class A notes to BB (high) (sf).

DBRS concludes that for the Class B notes:

• A hypothetical increase of the PD by 25% or a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class B notes to C (sf).

• A hypothetical increase of the PD by 50%, or a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class B notes to C (sf).

• A hypothetical increase of the PD by 50% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to downgrade the Class B notes to C (sf).

• A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to downgrade the Class B notes to C (sf).

• A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to downgrade the Class B notes to C (sf).

• A hypothetical increase of the PD by 50% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to downgrade the Class B notes to C (sf).

DBRS concludes that for the Class C notes:

• A hypothetical increase of the PD by 25% or a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class C notes to C (sf).

• A hypothetical increase of the PD by 50%, or a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class C notes to C (sf).

• A hypothetical increase of the PD by 50% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to downgrade the Class C notes to C (sf).

• A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to downgrade the Class C notes to C (sf).

• A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to downgrade the Class C notes to C (sf).

• A hypothetical increase of the PD by 50% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to downgrade the Class C notes to C (sf).

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

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

Initial Lead Analyst: David Sanchez Rodriguez
Initial Provisional Rating Date: June 16, 2014
Initial Provisional Rating Committee Chair: Erin Stafford
Lead Surveillance Analyst: Dylan Cissou

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

Legal Criteria for European Structured Finance Transactions
Operational Risk Assessment for European Structured Finance Servicers
Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
Unified Interest Rate Model for European Securitisations