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

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

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

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

The confirmations follow an annual review of the transactions and are based on the following analytical considerations:
-- The portfolio performance, in terms of level of delinquencies and cumulative net losses, as of the July 2018 payment date;
-- No purchase termination 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.

Auto 2014-2 and Auto 2016-2 are securitisations of German auto loan receivables originated to private borrowers by Santander Consumer Bank AG (SCB) – a subsidiary of Santander Consumer Finance SA (SCF).

The EUR 3.0 billion Auto 2014-2 portfolio, as of the July 2018 payment date, consists of loans for both new (37.3%) and used (62.7%) vehicles and closed in September 2014. The EUR 1.5 billion Auto 2016-2 portfolio consists of loans for both new (37.4%) and used (62.6%) vehicles and closed in July 2016.

PORTFOLIO PERFORMANCE
As of July 2018, loans more than 90 days delinquent in the Auto 2014-2 portfolio were 0.1% of the outstanding principal balance. Gross cumulative defaults stood at 0.2% of the aggregated original portfolios, of which 18.7% has been recovered so far. The Auto 2016-2 portfolio had 0.1% loans more than 90 days delinquent; gross cumulative defaults are 0.2%, of which 7.5% has been recovered.

REVOLVING PERIOD
Both transaction structures allow for additional portfolios to be purchased during a revolving period, which are due to end in September 2018 and July 2020 for Auto 2014-2 and Auto 2016-2, respectively. There are concentration limits and purchase termination events in place to mitigate potential portfolio performance deterioration, allowing for amortisation to begin earlier than scheduled. To date, all tests have passed.

CREDIT ENHANCEMENT
CE for the Auto 2014-2 Class A Notes is provided by the subordination of the unrated Class B Notes and has remained at 3.5% since closing. CE for the Auto 2016-2 Class A Notes is provided by the subordination of the unrated Class B Notes and has remained at 4.0% since closing.

The transaction structures include non-amortising liquidity reserves, funded at closing with the proceeds of the subordinated loans provided by the seller. These reserves are available to cover senior expenses and missed interest payments. 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 notes balance of Auto 2014-2 and Auto 2016-2, respectively.

Both deals are exposed to potential commingling and set-off risks as collections are transferred to the account bank once a month and debtors may open accounts with the originator. As a mitigant, SCB undertakes to fund both a commingling and 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 (BNP Paribas SS-Luxembourg) is the account bank for Auto 2014-2. The private rating of BNP Paribas SS-Luxembourg is consistent with the Minimum Institution Rating, given the rating 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 (Santander-Frankfurt) is the account bank for Auto 2016-2. The private rating of Santander-Frankfurt is consistent with the Minimum Institution Rating, given the rating 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 “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 these ratings 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 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.

The last rating action on these transactions took place on 28 July 2017, when DBRS confirmed its ratings on the Class A Notes in Auto 2014-2 at A (high) (sf) and the Class A Notes in Auto 2016-2 at A (sf).

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 these ratings, 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.

Auto 2014-2
-- The Base Case PD and LGD of the current pool of receivables are 3.6% and 63.1%, respectively.

For example, if the LGD increases by 50%, the rating of the Class A Notes would be expected to decrease to BBB (high) (sf), ceteris paribus. If the PD increases by 50%, the rating of the Class A Notes would be expected to decrease to BBB (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 BB (sf), ceteris paribus.

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

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

For example, if the LGD increases by 50%, the rating of the Class A Notes would be expected to decrease to BBB (high) (sf), ceteris paribus. If the PD increases by 50%, the rating of the Class A Notes would be expected to decrease to BBB (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 BB (sf), ceteris paribus.

Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD, expected rating of A (low) (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 (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, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 9 September 2014 (Auto 2014-2); 25 July 2016 (Auto 2016-2)

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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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.