DBRS Confirms Ratings of FTA, Santander Hipotecario 9

DBRS Ratings Limited (DBRS) has today confirmed the ratings on the bonds issued by Fondo De Titulización De Activos, Santander Hipotecario 9 (FTA, Santander Hipotecario 9 or the Issuer) as follows:

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

The confirmation of the ratings on the Series A, Series B and Series C notes reflects an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance in terms of delinquencies and defaults as of the February 2017 payment date.
-- Probability of default (PD) rate, loss given default (LGD) rate and expected loss assumptions for the remaining portfolio collateral.
-- Current available credit enhancement to the Series A notes to cover the expected losses at the AA (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. Given the characteristics of the Series C notes as defined in the transaction documents, the default would most likely be recognised at maturity or following an early termination of the transaction.

FTA, Santander Hipotecario 9 is a securitisation of Spanish prime residential mortgage loans originated and serviced by Banco Santander SA (Santander). The transaction follows Spanish Securitisation Law and closed in July 2013.

PORTFOLIO PERFORMANCE
The performance of the collateral portfolio is within DBRS’s expectations. As of February 2017, loans more than 90 days in arrears represent 0.87% of the outstanding performing portfolio collateral balance. Defaults are defined as loans in arrears for more than 18 months; the current cumulative defaults are at 1.92% 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 37.44% and 62.46%, respectively.

CREDIT ENHANCEMENT
The Series A notes are supported by the subordination of the Series B notes and the Reserve Fund, which is available to cover senior fees, interest and principal of the Series A and Series B notes. The Series B notes are solely supported by the Reserve Fund. As of the February 2017 payment date, the Series A and Series B note credit enhancement was at 39.32% and 4.87%, 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 Series B notes, maintaining such percentage until the Reserve Fund reaches the floor of 2.20% of the initial amount of the Series A and Series B notes. The Reserve Fund is currently at EUR 25.1million, which is below the target of EUR 28.6 million.

Santander acts as the account bank for this transaction. The account bank reference rating of “A,” which is one notch below the DBRS Long-Term Critical Obligations Rating of Santander at 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 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 Santander de Titulización, SGFT, S.A. and loan-level data from the 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 upgraded the Series A notes to AA (sf) from A (sf) and confirmed the Series B and Series C notes at CCC (sf) and C (sf), respectively.

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 14.00% and 51.05%, respectively. At the AA (sf) rating level, the corresponding PD is 37.44% and the LGD is 62.46%.
-- 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 Series A notes would be expected to be at A (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Series A notes would be expected to be at A (sf), assuming no change in the LGD. Furthermore, if both the PD and the LGD increase by 50%, the rating on the Series A notes would be expected to be at BBB (low) (sf).

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

The Series B and Series C notes’ ratings would not be affected by a hypothetical change in either the PD or LGD.

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: Vito Natale, Senior Vice President
Initial Rating Date: 2 July 2013

DBRS Ratings Limited
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United Kingdom
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
-- 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

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.