DBRS Confirms and Upgrades the Ratings on SC Germany Consumer 2015-1 UG (haftungsbeschränkt)

DBRS Ratings Limited (DBRS) has today taken the following rating actions on the Notes issued by SC Germany Consumer 2015-1 UG (haftungsbeschränkt) (the Issuer):

-- EUR 1,155,000,000 Class A Fixed-Rate Notes confirmed at AA (sf)
-- EUR 101,500,000 Class B Fixed-Rate Notes confirmed at A (sf)
-- EUR 39,200,000 Class C Fixed-Rate Notes upgraded to BBB (high) (sf) from BBB (sf)
-- EUR 45,500,000 Class D Floating-Rate Notes upgraded to BB (high) (sf) from BB (sf)

DBRS does not rate the EUR 58,800,000 Class E Floating-Rate Notes of the Issuer.The above-mentioned rating actions follow an annual review of the transaction and are based on the following analytical considerations, as described more fully below:

-- The overall portfolio performance as of the December 2016 payment date, in particular with regard to low levels of cumulative net loss 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 current levels of credit enhancement available to the Notes to cover expected losses assumed in line with their respective rating levels.

The ratings of the Notes address the timely payment of interest and the ultimate payment of principal on or before the Final Maturity Date in December 2028.

SC Germany Consumer 2015-1 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 1,400.0 million portfolio, as of the December 2016 payment date, consists of both secured (23.9%) and unsecured (76.1%) loans.

The transaction envisaged an initial 12-month revolving period, which has now matured and the Notes will start to amortise on the January 2017 payment date.

As of the December 2016 payment date, 30-day to 60-day delinquencies were 0.4% of the outstanding principal balance and 60-day to 90-day delinquencies were 0.2%, while delinquencies greater than 90 days were 0.1%. The gross cumulative defaults as a ratio of the original portfolio plus all additional receivables are 0.9%, of which 0.8% have been recovered.

Credit Enhancement (CE) is provided by overcollateralisation and the subordination of the respective junior obligations. As of December 2016: CE for the Class A Notes has remained at 17.5% since closing; CE for the Class B Notes has remained at 10.3% since closing; CE for the Class C Notes has remained at 7.5% since closing; and CE for the Class D Notes has remained at 4.2% since closing.

The transaction benefits from a Liquidity Reserve available to cover senior fees, expenses, swap payments and the interest due on the Class A Notes. It has remained at its target level of EUR 7.0 million since closing, and has an amortising target of 0.5% of the Aggregate Outstanding Principal Amount.

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 none of the rating triggers have been breached to date.

DBRS notes that there is a fixed–to-floating interest rate swap related to the lowest-ranked Classes D and E Notes between the Issuer and the swap counterparty, Unicredit Bank AG. The swap payments (other than termination payments when the swap counterparty is the defaulting party under the swap agreement) rank ahead of the Notes in the waterfall. DBRS has considered the relevant interest rate scenarios and the impact of regular swap payments on the cash flows in accordance with its methodologies. Unquantifiable termination payments in a scenario when the Issuer is the defaulting party may also affect the more senior classes of notes without hedge. However, such circumstance is expected to be sufficiently remote for the purpose of the rating assignment, as DBRS does not factor in additional risks related to scenarios such as post-enforcement after an issuer default or issuer liquidation.

The Bank of New York Mellon, Frankfurt Branch acts as the Account Bank for the transaction. DBRS’s private rating of The Bank of New York 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 (EUR) 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.

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 supplied with third party assessments at the Initial Rating. 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 15 December 2015, when DBRS finalised the provisional ratings assigned to the Notes.

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 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. Adverse changes to asset performance may cause stresses to Base Case assumptions and, therefore, have a negative effect on the credit ratings.

-- The Base Case of PD and LGD of the current pool of assets of receivables are 6.6% and 82.5%, 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 ratings for the Class A, Class B, Class C and Class D Notes would be expected to decrease to AA (low) (sf), A (low) (sf), BBB (sf) and BB (sf), respectively, ceteris paribus. If the PD increases by 50%, the ratings for the Class A, Class B, Class C and Class D Notes would be expected to decrease to A (sf), BBB (sf), BB (high) (sf) and B (sf), respectively, ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the ratings for the Class A, Class B, Class C and Class D Notes would be expected to decrease to A (low) (sf), BB (high) (sf), BB (low) (sf) and below B (sf), respectively, ceteris paribus.

Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD, expected rating of AA (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)

Class B Notes risk sensitivity:
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of A (low) (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 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)

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

Class D Notes risk sensitivity:
-- 25% increase in LGD, expected rating of BB (sf)
-- 50% increase in LGD, expected rating of BB (sf)
-- 25% increase in PD, expected rating of BB (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of B (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of B (sf)
-- 50% increase in PD, expected rating of B (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of below B (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of below B (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.

Lead Analyst: Joana Seara da Costa, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Senior Vice President
Initial Rating Date: 26 November 2015

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 Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Unified Interest Rate Model for European Securitisations
-- Derivative Criteria for European Structured Finance Transactions

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.