DBRS Upgrades Notes on SC Germany Consumer 2015-1 UG (haftungsbeschränkt)

DBRS Ratings Limited (DBRS) upgraded the following Notes issued by SC Germany Consumer 2015-1 UG (haftungsbeschränkt) (the Issuer):

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

-- The portfolio performance, in terms of level of delinquencies and cumulative net losses, as of November 2017 payment date;
-- Updated default, recovery and loss assumptions on the remaining receivables;
-- The increased levels of credit enhancement (CE) available to the rated Notes to cover expected losses are in line with their respective rating levels.

The rating of the Class A Notes addresses timely payment of interest and ultimate repayment of principal by the Final Maturity Date in December 2028. The ratings of the Class B, Class C, and Class D Notes address ultimate payment of interest and repayment of principal by the Final Maturity Date in December 2028.

SC Germany Consumer 2015-1 UG (haftungsbeschränkt) is a securitisation of German consumer loans originated and serviced by Santander Consumer Bank AG (SCB), a subsidiary of Santander Consumer Finance SA (SCF). The EUR 777.5 million portfolio, as of the November 2017 payment date, consisted of both secured (24.8%) and unsecured (75.2%) loans.

PORTFOLIO PERFORMANCE
The gross cumulative default ratio, as a percentage of the original portfolio plus all subsequent portfolios, was 2.1% as of November 2017 payment date, of which 3.2% has been recovered. The 90+ delinquency ratio was 0.2%.

PORTFOLIO ASSUMPTIONS
DBRS conducted an analysis of the remaining collateral pool and lowered its cumulative net loss assumption to 5.4%.

CREDIT ENHANCEMENT
CE is provided primarily by the subordination of the respective junior obligations. Additionally, the cash reserve may be applied to principal shortfalls at Issuer default or final maturity. As of November 2017, CE for the Class A Notes increased to 32.0% from 18.0%; CE for the Class B Notes increased to 19.0% from 10.8%; CE for the Class C Notes increased to 13.9% from 8.0%; and CE for the Class D Notes has increased to 8.1% from 4.7% since closing. The increases have been driven partly by the high levels of prepayment seen on the securitised loans.

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 an amortising target of 0.5% of the aggregate outstanding principal amount and currently stands at EUR 3.9 million.

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, in its capacity as Servicer and Originator, SCB must 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. However, 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, Unicredit Bank AG. 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 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 “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf

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 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 15 December 2017, when DBRS confirmed its ratings of AA (sf) and A (sf) on the Class A and Class B Notes, respectively, and upgraded its ratings of the Class C and Class D Notes to BBB (high) (sf) and BB (high) (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 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 rating of the Class A Notes would be expected to remain at AAA (sf), ceteris paribus. If the PD increases by 50%, the rating of the Class A Notes would be expected to decrease to AA (high) (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to decrease to AA (sf), ceteris paribus.

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

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

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

Class D 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 (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD, expected rating of BB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of B (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of B (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 and US regulations only.

Lead Analyst: Joana Seara da Costa, Senior Financial Analyst
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date: 26 November 2015

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 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