DBRS Confirms Rating on Class A Notes of IM Sabadell RMBS 3 FTA

DBRS Ratings Limited (DBRS) has today confirmed the rating of AA (high) (sf) on the Class A Notes issued by IM Sabadell RMBS 3 FTA (the Issuer).

The confirmation of the rating on the Class A Notes reflects an annual review of the transaction based on the following analytical considerations:
-- Portfolio performance in terms of delinquencies and defaults as of the December 2016 payment date.
-- Probability of default (PD), loss given default (LGD) and expected loss (EL) assumptions for the remaining portfolio collateral.
-- The current available credit enhancement (CE) to the Class A Notes to cover ELs at the AA (high) (sf) rating level.
-- Significant amount of renegotiations over the last few months, switching interest rates to fixed from floating rates. The higher exposure to the interest rate risk caused by a mismatch between the interest rates in the assets and liabilities is hedged by an interest rate swap agreement in place.

The notes are backed by a static portfolio of first-ranking mortgage loans secured by residential properties in Spain that were originated and continue to be serviced by Banco de Sabadell, S.A (Banco Sabadell or the Servicer). The transaction closed in December 2008 and DBRS first assigned a rating in March 2011.

Over the last few months, the Servicer has renegotiated a significant amount of interest rates to fixed from floating rates. The fixed interest-rate loan portion amounts increased over last months to 22.88% of the performing portfolio collateral balance as of January 2017, up from 5.29% and 3.99% as of closing and January 2016, respectively. The transaction benefits from an interest rate swap agreement entered into with Banco Sabadell to mitigate the interest rate risk exposure.

PORTFOLIO PERFORMANCE
The performance of the collateral portfolio is within DBRS’s expectations. As of December 2016, the percentage of loans that are 90+ days delinquent is 0.28% of the outstanding performing portfolio collateral balance. Defaults are defined as loans in arrears for more than 12 months; the current cumulative defaults are at 2.63% of the initial portfolio collateral balance.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the remaining pool and updated its PD and LGD assumptions on the remaining portfolio collateral pool to 20.85% and 43.24%, respectively.

CREDIT ENHANCEMENT
The Class A Notes are supported by two classes of subordinated notes (Class B and C Notes) and a Reserve Fund (RF0. As of the December 2016 payment date, CE for the Class A Notes as a percentage of the non-defaulted mortgage loans has been stable at 12.00% since DBRS’s last annual review. All three classes of Notes in the transactions are currently amortising pro rata.

The transaction also benefits from an amortising RF, which is currently at the target level (EUR 47.306 million), 8% of the total outstanding balance of the Notes. The RF covers both interest and principal payments shortfall on all three classes of Notes.

Banco Santander S.A. (Santander) acts as Account Bank for this transaction. Santander’s current long- term Critical Obligations Rating (A (high)) complies with the Minimum Institution Rating, given the rating assigned to the Class A Notes as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Banco Sabadell is the swap provider for the transaction. The DBRS private rating of Banco Sabadell is below the First Rating Threshold for a Swap Counterparty and the bank is currently posting collateral as described in the DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating 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 data and information used for this rating include investor report from InterMoney Titulización S.G.F.T., S.A and loan-level data from European DataWarehouse GmbH.

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 this rating 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 2 June 2016, when DBRS confirmed the Class A Notes at AA (high) (sf).

The lead analyst responsibilities for this transaction have been transferred to Antonio Di Marco.

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 lifetime base case PD and 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 assumptions for the remaining portfolio collateral are 4.31% and 27.02%, respectively. At the AA (high) (sf) rating level, the corresponding PD is 20.85% and the LGD is 43.24%.

-- 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 on the Class A Notes would be expected to be at A (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A Notes would be expected to be at A (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and the LGD increase by 50%, the rating on the Class A Notes would be expected to be at BBB (high) (sf).

Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of AA (low) (sf)
-- 50% increase in PD, expected rating of A (high) (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 BBB (high) (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 (high) (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: Antonio Di Marco, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 2 March 2011

DBRS Ratings Limited
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United Kingdom
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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
-- European RMBS Insight: Spanish Addendum
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- 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.