DBRS Confirms Rating on SC Germany Consumer 2014-1 UG (haftungsbeschränkt)

DBRS Ratings Limited (DBRS) has today confirmed its A (sf) rating on the EUR 1,205,000,000 Class A notes issued by SC Germany Consumer 2014-1 UG (haftungsbeschränkt) (the Issuer).

The rating action reflects an annual review of the transaction, based upon the following analytical considerations:
-- Portfolio Performance, in terms of delinquencies and defaults, as of the March 2016 payment date, in line with DBRS’s initial expectations.
-- No Early Amortisation Events have occurred.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested.
-- The current available credit enhancement to the notes to cover expected losses assumed in line with the A (sf) rating level for the Class A notes.

The rating on the Class A notes addresses the timely payment of interest and the ultimate payment of principal payable on or before the Final Legal Maturity Date in February 2028.

The Issuer is a securitisation collateralised by a pool of consumer loans granted to individuals resident in Germany. The portfolio was originated and is serviced by Santander Consumer Bank AG. The deal follows the standard structure under the German Securitisation Law and closed in 20 March 2014.

The transaction has a three-year revolving period, until the March 2017 payment date, during which the Issuer may purchase additional receivables. There are specific concentration limits and performance triggers to mitigate the potential portfolio performance deterioration. Since closing, replenishment of the underlying receivables has met the portfolio revolving conditions on each payment date.

The portfolio is performing in line with DBRS’s expectations. As of the March 2016 payment date, 31- to 60-days delinquencies and 61- to 90-days delinquencies were 0.46% and 0.26% of the portfolio principal balance, respectively, while delinquencies greater than 90 days were 0.16%. The cumulative gross default ratio was 1.99% of the aggregated original balance, with cumulative recoveries of 5.65%.

Credit enhancement for the Class A notes is provided by the subordination of the Class B notes and the Reserve Fund. Current credit enhancement of the Class A notes is equal to 11.74%.

A non-amortising Reserve Fund of EUR 13.50 million was funded at closing and provides liquidity support to the Class A and Class B notes. The reserve fund is currently at the initial and target level of EUR 13.50 million.

Bank of New York Mellon – Frankfurt Branch is the Account Bank for this transaction. The DBRS private rating of Bank of New York Mellon – Frankfurt Branch complies with the Minimum Institution Rating given the rating assigned to the notes, as described in DBRS’s Legal Criteria for European Structured Finance Transactions methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is Master European Structured Finance Surveillance Methodology.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

An asset and a cash flow analysis were both conducted. However, due to the inclusion of a revolving period in the transaction, and no change in assumptions, the initial analysis based on worst-case replenishment criteria set forth in the transaction legal documents was assumed.

A review of the transaction’s legal documents was not conducted, as the 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. This may be found at: http://www.dbrs.com/about/methodologies.

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

The sources of information used for this rating include monthly investor reports provided by Santander Consumer Bank AG.

DBRS does not rely upon third-party due diligence in order to conduct its analysis.

DBRS was not supplied with third-party assessments; however, this did not impact the rating analysis.

DBRS considers the information available to it for the purposes of providing these ratings 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.

The last rating action on this Issuer took place on 20 March 2015, when DBRS confirmed the rating assigned to the Class A notes at A (sf).

The lead responsibilities for this transaction have been transferred to Vito Natale.

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

To assess the impact of changing transaction parameters on the rating, at closing DBRS considered the following stress scenarios compared with the parameters used to determine the rating (the Base Case):
-- DBRS expected a base case probability of default (PD) and loss given default (LGD) for the portfolio 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 receivables are 7.57% and 82.92%, respectively.
-- The Risk Sensitivity below illustrates the ratings expected for each series of Class A notes if the PD and LGD increase by a certain percentage over the base case assumptions. For example, if the LGD increases by 50%, the rating of Class A notes would be expected to fall to BBB (high) (sf), all else being equal. If the PD increases by 50%, the rating of Class A notes would be expected to fall to BBB (sf), all else being equal. Furthermore, if both the PD and LGD increase by 50%, the rating of Class A notes would be expected to fall to BB (high) (sf), all else being equal.

Class A notes risk sensitivity:
-- 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (sf)
-- 50% increase in PD, expected rating of BBB (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (high) (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 Rating Date: 20 March 2014
Initial Rating Committee Chair: Chuck Weilamann

Lead Surveillance Analyst: Vito Natale
Rating Committee Chair: Chuck Weilamann

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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 analyses structured finance transactions and how the methodologies are collectively applied can be found at http://www.dbrs.com/research/278375.