DBRS Confirms Ratings on FT Santander Consumer Spain Auto 2016-1

DBRS Ratings Limited (DBRS) has today taken the following rating actions on the Notes issued by FT Santander Consumer Spain Auto 2016-1 (the Issuer):

-- EUR 650,200,000 Series A Notes confirmed at AA (sf)
-- EUR 30,600,000 Series B Notes confirmed at A (sf)
-- EUR 42,100,000 Series C Notes confirmed at BBB (sf)
-- EUR 23,000,000 Series D Notes confirmed at BB (low) (sf)

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 January 2017 payment date, in particular with regard to low levels of cumulative net loss and delinquencies.
-- The current levels of credit enhancement available to the Notes to cover expected losses assumed in line with their respective rating levels.
-- The transaction has not experienced any events terminating its revolving period.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms and conditions of the Notes.

The rating of the Series A Notes address the timely payment of interest and the ultimate repayment of principal on or before the Legal Maturity Date in April 2032. The ratings of the Series B, Series C and Series D Notes address the ultimate payment of interest and repayment of principal on or before the Legal Maturity Date in April 2032.

FT Santander Consumer Auto Spain 2016-1 is a securitisation consisting of Spanish auto loan receivables granted by Santander Consumer E.F.C., S.A. (SC), a subsidiary of Santander Consumer Finance, S.A. (SCF). The EUR 765.0 million portfolio, as of the January 2017 payment date, consists of loans for both the purchase of new (78.9%) and used (21.1%) vehicles, underwritten to mostly retail (95.4%) and some commercial (4.6%) clients.

The transaction closed on 16 March 2016 and envisaged an initial 40-month revolving period, due to mature on the July 2019 payment date.

PORTFOLIO PERFORMANCE
As of the January 2017 payment date, 30-day to 60-day arrears were 0.3% of the outstanding principal balance and 60-day to 90-day delinquencies were 0.1%, while delinquencies greater than 90 days were 0.3%. No principal losses have been realised currently to the portfolio.

CREDIT ENHANCEMENT
Credit Enhancement (CE) is initially provided by the subordination of the respective junior obligations. Additionally, the Cash Reserve can be used in the event of Issuer default and final maturity. As of January 2017, CE for the Series A Notes has remained at 17.0% since closing, CE for the Series B Notes has remained at 13.0% since closing, CE for the Series C Notes has remained at 7.5% since closing and CE for the Series D Notes has remained at 4.5% since closing.

REVOLVING PERIOD
As of the January 2017 payment date, no performance triggers have been breached, causing the revolving period to mature early. To further mitigate the deterioration of the pool, the transaction permits certain concentration limits on the additional portfolios purchased on each payment date. The “worst-case” portfolio composition was considered in the cash flow analysis.

The non-amortising Cash Reserve was funded from the issuance of the Series F Notes. It is primarily available to cover senior fees, expenses and the interest due on the Series A-E Notes, but can be applied to offset principal losses in the event of Issuer default or at final maturity. It has remained at its target of EUR 15.3 million since closing.

To mitigate any disruptions in payments due to the replacement of the servicer or the risk that the Servicer fails to transfer the collections to the Issuer, the transaction documents envisage Liquidity and Commingling Reserves. These were unfunded at closing and will only be funded if the DBRS rating of SC’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. Set-off risk is not relevant in this jurisdiction.

Since both the receivables and the Notes pay a fixed rate of interest, there is a natural hedge inherent in the transaction.

SCF acts as the Account Bank for the transaction. DBRS’s private rating of SCF 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.

The ratings assigned to the Series D Notes materially deviate from the higher ratings implied by the methodology. In this case, the ratings also reflect qualitative factors such as the absence of any evidence of defaults so far, given the definition of defaulted loans and the short period since closing.

Notes:
All figures are in euros (EUR) unless otherwise noted.

The principal methodology applicable to the ratings 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. Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the 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 data and information used for these ratings include quarterly investor reports provided by Santander de Titulización S.G.F.T., S.A.

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

At the time of the initial rating, DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

The last rating action on this transaction took place on 17 March 2016, when DBRS finalised the provisional ratings on the Series A, Series B, Series C and Series D 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 PD and LGD of the current pool of receivables are 8.9% and 50.1%, respectively, excluding sovereign stress.

-- 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 Series A, Series B, Series C and Series D Notes would be expected to decrease to A (sf), BBB (high) (sf), BB (high) (sf) and B (high) (sf), respectively, ceteris paribus. If the PD increases by 50%, the ratings for the Series A, Series B, Series C and Series D Notes would be expected to decrease to A (sf), BBB (high) (sf), BB (high) (sf) and B (high) (sf), respectively, ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the ratings for the Series A, Series B, Series C and Series D Notes would be expected to decrease to BBB (low) (sf), BB (sf), B (low) (sf) and CCC (sf), respectively, ceteris paribus.

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

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

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

Series D Notes risk sensitivity:
-- 25% increase in LGD, expected rating of BB (low) (sf)
-- 50% increase in LGD, expected rating of B (high) (sf)
-- 25% increase in PD, expected rating of BB (low) (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 CCC (sf)
-- 50% increase in PD, expected rating of B (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of CCC (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of CCC (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: Vito Natale, Senior Vice President
Initial Rating Date: 10 March 2016

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

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.