DBRS Confirms Rating on Series 5 Notes Issued by Rayo Finance Ireland (No. 1) Limited

DBRS Ratings Limited (DBRS) confirmed the rating on the Rayo Finance Ireland (No. 1) Limited (the Issuer) Series 5 Notes (the Notes) at A (high) (sf).

The rating action reflects an annual review of the transaction and is based on the following analytical considerations:

-- The link between the transaction and the sovereign rating of Spain, being limited to two notches above the Sovereign rating according to DBRS’s “Spanish 2005 Electricity Tariff” methodology. The DBRS Sovereign Group confirmed the Kingdom of Spain’s Long-Term Local Currency Issuer Rating at A (low) with a Stable trend on 7 April 2017 (http://dbrs.com/research/308293/dbrs-confirms-the-kingdom-of-spain-at-a-low-stable-trend.html).

-- No adverse change of the legal or regulatory framework or a deterioration in the performance of the public entities involved in the transaction is expected.

-- The transaction is not exposed to the credit risk of any specific entity.

The Issuer is a static securitisation of Spanish electricity tariff deficit receivables. The Notes are backed by 16.47% of the 2005 Tariff Deficit Compensation Entitlement acquired by Banco Santander SA. The transaction has a principal repayment pass-through structure and follows the standard structure under English law.

Since the December 2015 interest rate reset, the coupon on the Notes is negative. At each payment date, the Notes principal balance is reduced by the negative interest amount due. As a result, the amortization speed of the Notes is increased. Nonetheless, this is not deemed an event of default. DBRS considers negative interest rates credit neutral to the transaction.

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 legal 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 source of data and information used for this rating includes the monthly investor reports provided by Banco Santander SA.

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 24 August 2016, when DBRS confirmed the rating on the Series 5 Notes at A (high) (sf).

Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.

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 U.S. regulations only.

Lead Analyst: Kevin Ma, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 23 March 2012

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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Spanish 2005 Electricity Tariff
-- 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.