DBRS Confirms and Upgrades the Ratings on SC Germany Consumer 2016-1 UG (haftungsbeschränkt)

DBRS Ratings Limited (DBRS) has taken the following rating actions on the Notes issued by SC Germany Consumer 2016-1 UG (haftungsbeschränkt) (the Issuer):

-- Class A Fixed-Rate Notes confirmed at AA (sf)
-- Class B Fixed-Rate Notes confirmed at A (sf)
-- Class C Fixed-Rate Notes upgraded to BBB (high) (sf) from BBB (sf)
-- Class D Floating-Rate Notes upgraded to BB (high) (sf) from BB (sf)

DBRS does not rate the Class E Floating-Rate Notes of the Issuer.

The 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 September 2017 payment date, particularly with regard to low levels of cumulative net loss and delinquencies;
-- Portfolio default (PD) rate, loss given default (LGD) and expected loss assumptions for the remaining collateral pool;
-- The revolving period has matured;
-- The current levels of credit enhancement (CE) available to the rated Notes to cover expected losses are in line with their respective rating levels.

The ratings of the Notes address the timely payment of interest and the ultimate payment of principal on or before the Final Maturity Date in September 2029.

SC Germany Consumer 2016-1 UG (haftungsbeschränkt) is a securitisation of German consumer loans originated by Santander Consumer Bank AG (SCB), a subsidiary of Santander Consumer Finance SA (SCF). The EUR 750.0 million portfolio, as of the September 2017 payment date, consists of both secured (22.5%) and unsecured (77.5%) loans.

PORTFOLIO PERFORMANCE AND ASSUMPTIONS
The gross cumulative default ratio, as a percentage of the original portfolio plus all subsequent portfolios, was 0.7% as of September 2017 payment date, of which 1.3% has been recovered. The 90+ delinquency ratio was 0.1%. DBRS has maintained its base case default rate and recovery assumptions at 6.6% and 17.5%, respectively.

REVOLVING PERIOD
The transaction envisaged an initial 12-month revolving period, which has now matured and the Notes will start to amortise on the October 2017 payment date.

CREDIT ENHANCEMENT
CE is provided by the subordination of the respective junior obligations and the Cash Reserve. As of September 2017 and since closing, CE for the Class A Notes has remained at 15.7%; CE for the Class B Notes has remained at 10.0%; CE for the Class C Notes has remained at 6.2%; and CE for the Class D Notes has remained at 4.7%.

The transaction benefits from a Cash Reserve available to cover senior fees, expenses, swap payments and the interest due on the Class A Notes. It has remained at its target level of EUR 3.8 million since closing, and has an amortising target of 0.5% of the Aggregate Outstanding Principal Amount.

The deal is exposed to potential commingling and set-off risks as debtors may open accounts with the Originator and collections are swept to the Account Bank on each monthly payment date. As a mitigant, SCB in its capacity as Servicer and Originator, respectively, undertakes to fund separate Commingling and Set-Off Reserves, if the DBRS rating of SCB’s parent company – SCF – falls below specific thresholds as defined in the legal documentation. These reserves continue to be unfunded as no rating threshold triggers have been breached to date.

DBRS notes that there is a fixed–to-floating interest rate swap related to the lowest-ranked Classes D and E Notes between the Issuer and the swap counterparty, Abbey National Treasury Services plc. The swap payments (other than termination payments when the swap counterparty is the defaulting party under the swap agreement) rank ahead of the Notes in the waterfall. DBRS has considered the relevant interest rate scenarios and the impact of regular swap payments on the cash flows in accordance with its methodologies.

The Bank of New York Mellon, Frankfurt Branch (BNY Mellon, Frankfurt Branch) serves as the transaction’s Account Bank. DBRS’s private rating of BNY Mellon, Frankfurt Branch complies with the minimum institution rating, given the ratings assigned to the Class A Fixed-Rate 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 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 sources of data and information used for this rating include monthly investor reports provided by SCB.

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

At the time of the initial rating DBRS was not 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 27 September 2016, when DBRS finalised the provisional ratings assigned to the Notes.

The lead analyst 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 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 PD and 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 PD and LGD of the current pool of assets of receivables are 6.6% and 82.5%, respectively.

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

Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% 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 A (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 (high) (sf)

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

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

Class D Notes risk sensitivity:
-- 25% increase in LGD, expected rating of BB (sf)
-- 50% increase in LGD, expected rating of BB (sf)
-- 25% increase in PD, expected rating of BB (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 B (sf)
-- 50% increase in PD, expected rating of B (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating below B
-- 50% increase in PD and 50% increase in LGD, expected rating below B

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 Date: 15 September 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
-- 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