DBRS Confirms the Ratings of SC Germany Vehicles 2013-1 UG (haftungsbeschränkt)

DBRS Ratings Limited (DBRS) has today confirmed its rating on the EUR 630,000,000 Class A notes issued by SC Germany Vehicles 2013-1 UG (haftungsbeschränkt) (the Issuer).

The above-mentioned rating action is based on the following analytical considerations, as described more fully below:
-- The overall portfolio performance as of the August 2016 payment date, in particular with regard to low levels of cumulative net defaults and delinquencies.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms and conditions of the notes.
-- The high levels of credit enhancement available to the Class A notes to cover expected losses assumed in line with an A (sf) rating level.
-- No Early Amortisation Event has occurred.

The rating of the Class A notes addresses the timely payment of interest and the ultimate payment of principal on or before the Final Maturity Date in October 2027.

SC Germany Vehicles 2013-1 UG (haftungsbeschränkt) is a securitisation of German auto loans originated by Santander Consumer Bank AG (SCB), a subsidiary of Santander Consumer Finance SA (SCF). The EUR 700.00 million portfolio, as of the August 2016 payment date consists of loans for the purpose of new (45.63%) and used (54.37%) vehicles, granted entirely to corporate and commercial customers. Of these receivables, 60.91% make regular payments while the remaining 39.09% have a balloon instalment. The transaction envisages an initial revolving period of three years, due to mature preceeding the first principal payment date in November 2016.

DBRS has noticed that two loans have been included in the pool each with an outstanding principal balance greater than EUR 150,000.00. Since this exceeds the maximum individual borrower amount stipulated in the revolving period concentration limits, the Seller has been obliged to repurchase both loans under the Deemed Collections mechanism at the next payment date in September 2016. The investor report for this period has been published, and DBRS can confirm these loans have been removed from the securitised pool.

The portfolio is performing in line with DBRS’s expectations. The gross cumulative default ratio (as a percentage of the original portfolio plus all subsequent additional portfolios) is 0.72% as of August 2016, of which 17.89% have been recovered. The 90+ delinquency ratio is 0.15%.

Credit Enhancement (CE) is provided by the subordination of the Class B notes and the Cash Reserve. CE for the Class A notes has maintained at 11.00% since closing.

The transaction benefits from a Cash Reserve available to cover senior fees and the interest due on the Class A notes. It is also available to cover the interest shortfall on the Class B notes, provided a Principal Deficiency Trigger Event has not occurred. It has remained at its non-amortising target level of EUR 7.00 million since closing, equal to 1.00% of the initial balance of the Class A and B notes.

The deal is exposed to potential commingling and set-off risks (as debtors may open accounts with the Originator). As a mitigant, the Servicer undertakes to fund a Commingling Reserve, as well as a Set-Off Reserve, if the DBRS rating of SCB’s parent company (SCF) falls below specific thresholds as defined in the legal documentation. These reserves continue to be unfunded as no rating threshold triggers have been breached to date.

Since the portfolio receivables and the notes pay a fixed coupon, there is a natural hedge in the transaction structure. Further, the eligibility criteria permits only fixed-rate-paying loan receivables to be purchased in each subsequent portfolio.

The Bank of New York Mellon, Frankfurt Branch (BNY Mellon, Frankfurt Branch) serves as Account Bank for the transaction. The DBRS private rating of BNY Mellon, Frankfurt Branch complies with the Minimum Institution Rating, given the ratings 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 cashflow analysis were both conducted. However, due to the inclusion of a revolving period in the transaction and no change in assumptions, the initial and current analysis were based on worst-case replenishment criteria set forth in the transaction legal documents.

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.

These 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 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 monthly investor reports provided by SCB.

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 to be 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 7 September 2015, when the rating of the Class A notes was confirmed at A (sf).

The lead responsibilities for this transaction have been transferred to Joana Seara da Costa.

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”):

-- 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 and the transaction’s replenishment criteria. Adverse changes to asset performance may cause stresses to base case assumptions and, therefore, have a negative effect on credit ratings.

-- The Base Case of PD and LGD of the current pool of assets of receivables are 6.33% and 59.76%, respectively.

-- The Risk Sensitivity overview below illustrates the ratings expected for the 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 for the Class A notes would be expected to decrease to BBB (high) (sf), all else being equal. If the PD increases by 50%, the ratings for the Class A notes would be expected to decrease to BBB (high) (sf), all else being equal. Furthermore, if both the PD and LGD increase by 50%, the ratings for the Class A notes would be expected to decrease to BB (low) (sf), all else being equal.

Class A notes risk sensitivity:
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD, expected rating of A (low) (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 BB (high) (sf)
-- 50% increase in PD, expected rating of BBB (high) (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 (low) (sf)

For further information on DBRS historical default rates published by the European Securities and Markets Authority (“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: 23 October 2013
Initial Rating Committee Chair: Chuck Weilamann

Lead Surveillance Analyst: Joana Seara da Costa, Senior Financial Analyst
Rating Committee Chair: Chuck Weilamann, Managing Director

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

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

-- Master European Structured Finance Surveillance Methodology
-- Legal Criteria for European Structured Finance Transactions
-- 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 analysis structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375