DBRS Confirms Ratings on FTA, Santander Hipotecario 7

DBRS Ratings Limited (DBRS) has today taken the following rating actions on the bonds issued by FTA, Santander Hipotecario 7 (the Issuer):

-- Series A notes confirmed at AA (high) (sf);
-- Series B notes confirmed at CCC (sf);
-- Series C notes confirmed at C (sf).

The confirmation of the ratings of the Series A, Series B and Series C notes is based on the following analytical considerations, as described more fully below:

-- Portfolio performance, in terms of delinquencies and defaults, as of the December 2015 payment date.
-- Updated portfolio default rate, loss given default (LGD) and expected loss assumptions for the remaining collateral pool.
-- Incorporation of a sovereign-related stress component in the rating analysis to address the impact of macroeconomic variables on collateral performance given the long-term foreign and local currency rating of A (low) for the Kingdom of Spain.
-- Current available credit enhancement to the Series A notes to cover the expected losses at the AA (high) (sf) rating level, and to the Series B notes to cover the expected losses at the CCC (sf) rating level. The Series C notes were issued to fund the reserve fund and are in a first loss position supported only by available excess spread.

FTA, Santander Hipotecario 7 is a securitisation of Spanish prime residential mortgage loans originated and serviced by Banco Santander SA (Santander). The transaction follows the Spanish Securitisation Law and closed in July 2011.

The transaction is performing within DBRS’s expectations. As of December 2015, the cumulative default ratio (as a percentage of the original balance of the portfolio) stands at 2.83%. The 90+ delinquency ratio as a percentage of the performing balance of the portfolio remained stable over the year and is currently at 0.92%.

The Series A notes are supported by the subordination of the Series B notes and Reserve Fund, which is available to cover senior fees, interest and principal of the Series A and B notes. The Series B notes are solely supported by the Reserve Fund. As of the December payment date, Series A and B notes credit enhancement was at 32.52% and 3.46% respectively. The Series C notes will be repaid according to the Reserve Fund amortisation.

The reserve fund is able to amortise once it has reached 10% of the Outstanding Balance of the Series A and B notes, maintaining such percentage until the Reserve Fund reaches the floor of 1.767% of the initial amount of the Series A and B notes. The Reserve Fund is currently at €42.9 million, below the target of €63.6 million.
Santander acts as Account Bank (as holder of the Treasury Account) for this transaction. The DBRS Long Term Critical Obligations Rating of Santander of A (high) complies with the Minimum Institution Rating given the rating assigned to the Series A 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 the “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. A review of the transaction 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 on www.dbrs.com at:
http://www.dbrs.com/about/methodologies

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

The sources of information used for this rating include investor reports and an amendment agreement provided by Santander de Titulización, SGFT, SA and data from the European DataWarehouse GmbH.

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 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.

The last rating action on this transaction took place on 10 September 2015, when DBRS confirmed the Series A notes at AA (high) (sf), downgraded Series B notes to CCC (sf) and confirmed Series C notes at C (sf).

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

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with the parameters used to determine the rating (the base case):
-- DBRS expected a lifetime base case probability of default (PD) and loss given default (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 mortgages for the Issuer are 14.31% and 43.87%, respectively. At the AA (high) (sf) rating level, the corresponding PD is 41.55% and the LGD 60.69%.
-- 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 (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Series A notes would be expected to remain at AA (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A notes would be expected to fall to BBB (high) (sf).

Series A notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (high) (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 A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)

The Series B and C notes’ ratings would not be affected by any hypothetical change in neither LGD nor Expected Loss.

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: Lain Gutierrez
Initial Rating Date: 28 July 2011
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Antonio Di Marco
Rating Committee Chair: Mary Jane Potthoff

DBRS Ratings Limited
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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 (February 2016)
-- Master European Structured Finance Surveillance Methodology (December 2015)
-- Operational Risk Assessment for European Structured Finance Servicers (December 2015)
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (January 2016)
-- Unified Interest Rate Model for European Securitisations (October 2015)
-- Derivative Criteria for European Structured Finance Transactions (February 2016)

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.