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

DBRS Ratings GmbH (DBRS Morningstar) confirmed its AA (low) (sf) rating on the Series 5 Notes (the Notes) issued by Rayo Finance Ireland (No. 1) Designated Activity Company (the Issuer).

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

-- The link between the transaction rating and the sovereign rating of the Kingdom of Spain (Spain; rated “A” with a positive trend by DBRS Morningstar). According to DBRS Morningstar’s “Spanish 2005 Electricity Tariff” methodology, the transaction rating cannot be more than two notches above the sovereign rating.
-- No adverse change in 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 Morningstar considers negative interest rates credit neutral to the transaction.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release https://www.dbrsmorningstar.com/research/358308.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is the “Master European Structured Finance Surveillance Methodology” (December 2019).

DBRS Morningstar 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 at: https://www.dbrsmorningstar.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 “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/350410/global-methodology-for-rating-sovereign-governments.

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

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

At the time of the initial rating, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS Morningstar considers the data and information available to it for the purpose of providing this rating to be of satisfactory quality.

DBRS Morningstar 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 30 April 2019 when DBRS Morningstar confirmed the AA (low) (sf) rating of the Notes.

The lead analyst responsibilities for this transaction have been transferred to Petter Wettestad.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies is available at www.dbrsmorningstar.com.

To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios as compared to the parameters used to determine the rating (the Base Case):

DBRS Morningstar concludes that for the Notes:
-- A hypothetical downgrade of the sovereign rating of Spain by one notch, ceteris paribus, would lead to a downgrade of the Notes to A (high) (sf).
-- A hypothetical downgrade of the sovereign rating of Spain by two notches, ceteris paribus, would lead to a downgrade of the Notes to A (sf).

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see:
https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings GmbH are subject to EU and U.S. regulations only.

Lead Analyst: Petter Wettestad, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 23 March 2012

DBRS Ratings GmbH
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60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500

Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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

-- Master European Structured Finance Surveillance Methodology (13 December 2019).
https://www.dbrsmorningstar.com/research/354616/master-european-structured-finance-surveillance-methodology.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019).
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020).
https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers.
-- Spanish 2005 Electricity Tariff (14 January 2020).
https://www.dbrsmorningstar.com/research/355551/spanish-2005-electricity-tariff.
-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2020).
https://www.dbrsmorningstar.com/research/351557/interest-rate-stresses-for-european-structured-finance-transactions.

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/278375.

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