DBRS Confirms Ratings on SC Germany Auto 2014-2 and SC Germany Auto 2016-2

DBRS Ratings Limited (DBRS) has today confirmed the ratings on two SC Germany Auto Loan transactions as follows:

SC Germany Auto 2014-2 UG (haftungsbeschränkt) (SC Germany 2014-2)
-- Class A notes confirmed at A (high) (sf)

SC Germany Auto 2016-2 UG (haftungsbeschränkt) (SC Germany 2016-2)
-- Class A Notes confirmed at A (sf)

The above-mentioned rating actions follow an annual review of the transactions and are based on the following analytical considerations, as described more fully below:
-- The overall portfolios’ performance as of the July 2017 payment date, particularly with regard to low levels of cumulative net loss and delinquencies.
-- No Early Amortisation Events have occurred.
-- The current levels of credit enhancement (CE) available to the rated notes to cover expected losses are in line with their respective rating levels.

SC Germany 2014-2 and SC Germany 2016-2 are securitisations of German auto loans originated by Santander Consumer Bank AG (SCB), a subsidiary of Santander Consumer Finance SA (SCF).

The EUR 3.0 billion SC Germany 2014-2 portfolio, as of the July 2017 payment date, consists of loans for both new (37.7%) and used (62.3%) vehicles and closed on 19 September 2014. The EUR 1.5 billion SC Germany 2016-2 portfolio consists of loans for both new (36.5%) and used (63.5%) vehicles and closed on 28 July 2016.

PORTFOLIO PERFORMANCE
Loans more than 90 days delinquent in the SC Germany 2014-2 portfolio are currently 0.1% of the outstanding principal balance. Gross cumulative defaults stand at 0.2% of the initial portfolio balance plus all subsequent portfolios, of which 16.6% has been recovered. The SC Germany 2016-2 portfolio has 0.1% loans more than 90 days delinquent; gross cumulative defaults are 0.1%, of which 2.9% has been recovered.

REVOLVING PERIOD
Both transaction structures allow for additional portfolios to be purchased during a revolving period, which are due to mature in September 2018 and July 2020 for SC Germany 2014-2 and SC Germany 2016-2, respectively. There are concentration limits and Early Amortisation Events in place to mitigate potential portfolio performance deterioration during the revolving periods, allowing for amortisation to begin earlier than scheduled. To date, all tests have been passed.

CREDIT ENHANCEMENT
CE for the SC Germany 2014-2 Class A notes is provided by the subordination of the unrated Class B notes and a non-amortising Reserve Fund, and has remained at 4.5% since closing. CE for the SC Germany 2016-2 Class A Notes is provided by the subordination of the unrated Class B Notes and a non-amortising Reserve Fund, and has remained at 5.0% since closing.

The transaction structures include non-amortising Reserve Funds, funded at closing with the proceeds of the Subordinated Loan provided by the Seller. These reserves are available to cover senior expenses and missed interest payments. Additionally, these funds are available to pay principal in the event of an Issuer default or at the final maturity of the transactions. The reserve funds are currently at their target levels of EUR 30.0 million and EUR 15.0 million, equivalent to 1.00% of the initial aggregate note balance of SC Germany 2014-2 and SC Germany 2016-2, respectively.

Both deals are 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. To date, these reserves continue to be unfunded, as none of the rating triggers have been breached.

BNP Paribas Securities Services, Luxembourg Branch acts as the Account Bank for the SC Germany 2014-2 transaction. DBRS’s private rating of BNP Paribas Securities Services, Luxembourg Branch complies with the minimum institution rating given the ratings assigned to the Class A notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Banco Santander S.A. Frankfurt Branch acts as the Account Bank for the SC Germany 2016-2 transaction. DBRS’s private rating of Banco Santander S.A. Frankfurt Branch complies with the minimum institution rating given the ratings assigned to the Class 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 ratings is: “Master European Structured Finance Surveillance Methodology”.

DBRS has applied the principal methodology consistently and conducted a review of the transactions in accordance with the principal methodology.

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transactions, the analysis continues to be based on the worst-case replenishment criteria set forth in the transactions legal documents.

A review of the transactions legal documents was not conducted as the legal documents have remained unchanged since the most recent rating actions.

Other methodologies referenced in these transactions 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 monthly investor reports provided by SCB, the Seller.

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

At the time of the initial ratings 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.

This is the first rating action on the SC Germany 2016-2 transaction since the Initial Rating Date.

The last rating action on the SC Germany 2014-2 transaction took place on 6 September 2016, when DBRS upgraded the rating of the Class A notes to A (high) (sf) from A (sf).

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. 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 SC Germany 2014-2 pool of assets of receivables are 3.5% and 63.1%, respectively.

-- The Base Case of PD and LGD of the current SC Germany 2016-2 pool of assets of receivables are 2.7% and 61.9%, respectively.

-- The Risk Sensitivity overview below illustrates the ratings expected for SC Germany 2014-2 Class A notes and SC Germany 2016-2 Class A 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 SC Germany 2014-2 Class A notes would be expected to be downgraded to A (low) (sf) while the rating for the SC Germany 2016-2 Class A Notes would be expected to be downgraded to BBB (high) (sf), ceteris paribus. If the PD increases by 50%, the rating for the SC Germany 2014-2 Class A notes would be expected to be downgraded to A (low) (sf) while the rating for the SC Germany 2016-2 Class A Notes would be expected to be downgraded to BBB (high) (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating for the SC Germany 2014-2 Class A notes would be expected to be downgraded to BB (high) (sf) while the rating for the SC Germany 2016-2 Class A Notes would be expected to be downgraded to BB (sf), ceteris paribus.

SC Germany 2014-2 Class A notes risk sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (low) (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 (sf)
-- 50% increase in PD, expected rating of A (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)

SC Germany 2016-2 Class A 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)
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 and US regulations only.

Lead Analyst: Joana Seara da Costa, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Dates: 19 September 2014 (SC Germany 2014-2); 25 July 2016 (SC Germany 2016-2)

DBRS Ratings Limited
20 Fenchurch Street, 31st Floor, London EC3M 3BY 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
-- 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

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