DBRS Morningstar Assigns Ratings to Golden Bar (Securitisation) S.r.l. 2020-2

DBRS Ratings Limited (DBRS Morningstar) assigned ratings of A (high) (sf) and BBB (sf) to the Class A 2020-2 variable funding notes and Class B 2020-2 variable funding notes (the rated notes), respectively, issued by Golden Bar (Securitisation) S.r.l., Series 2020-2 (the Issuer). DBRS Morningstar does not rate the Class Z 2020-2 variable funding notes also issued in this transaction.

The ratings of the Class A 2020-2 and the Class B 2020-2 variable funding notes address the timely payment of interest and the ultimate repayment of principal by the legal maturity date, in accordance with terms of the notes.

The transaction represents the issuance of the Class A 2020-2, the Class B 2020-2, and the Class Z 2020-2 variable funding notes backed by a portfolio of approximately EUR 559 million of fixed-rate receivables related to amortising automobile loans granted by Santander Consumer Bank S.p.A. (the originator) to private individuals, corporations, and self-employed residing in the Republic of Italy. The originator will also service the portfolio.

The ratings are based on DBRS Morningstar’s review of the following analytical considerations:
-- The transaction capital structure, including form and sufficiency of available credit enhancement.
-- Credit enhancement levels are sufficient to support DBRS Morningstar’s projected expected net losses under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms of the notes.
-- DBRS Morningstar’s operational risk review of Santander Consumer Bank S.p.A., which it deemed to be an acceptable originator and servicer.
-- Santander Consumer Bank S.p.A.’s capabilities with respect to originations, underwriting and servicing, and its financial strength.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The credit quality, diversification of the collateral, and historical and projected performance of the seller’s portfolio and the reasonable changes during the revolving/ramp up period permitted according to the transaction documents.
-- DBRS Morningstar’s sovereign rating of the Republic of Italy at BBB (high) with a Negative trend.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology, the presence of legal opinions that address the true sale of the assets to the Issuer.

The transaction includes a 38-month ramp-up and revolving period during which time the originator may offer additional receivables that the Issuer will purchase provided that certain conditions are met, including that eligibility criteria and concentration limits set out in the transaction documents are satisfied and that the issuer has sufficient funds to pay the purchase price. The revolving period may end earlier than scheduled if certain events occur, including the breach of performance ratios or concentration limits. The programme limit of the variable funding notes is EUR 750,000,000 on aggregated basis.

TRANSACTION STRUCTURE
The transaction allocates payments on separate interest and principal priorities and benefits from an amortising EUR 5.2 million cash reserve funded through a subordinated loan.

The cash reserve can be used to cover senior costs, interest on the rated notes thus providing liquidity support during the life of the transaction. The reserve amortises in line with the rated notes and has to be maintained at 1.0% of their aggregated principal amount outstanding, with a floor of 0.15% of the rated notes’ initial principal balance.

A set-off reserve is expected to be funded by the originator if the rating of the servicer’s owner, Santander Consumer Finance S.A., falls below BBB or it ceases to own 100% of the share capital of the originator.

The repayment of the notes occurs on a fully sequential basis with senior notes repaid in priority.

The notes pay fixed interest rate, and the portfolio also pays fixed-interest rate.
The transaction structure was analysed in Intex DealMaker.

COUNTERPARTIES
Banco Santander S.A. and Deutsche Bank S.p.A. act as Spanish and Italian account bank (together, the accounts banks), respectively, for the transaction. Based on the DBRS Morningstar Long-Term Senior Debt Rating of Banco Santander S.A. at A (high), its Long Term Critical Obligations Rating (COR) at AA (low), the DBRS Morningstar private rating of Deutsche Bank S.p.A., the downgrade provisions outlined in the transaction documents, and structural mitigants, DBRS Morningstar considers the risk arising from the exposure to either of the account banks to be consistent with the ratings assigned, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

COVID-19
The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many ABS transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar conducted an additional sensitivity analysis of the expected default rate based on the borrowers perceived exposure to adverse disruptions of the coronavirus.

On 16 April 2020, the DBRS Morningstar Sovereign group published its outlook on the impact to key economic indicators for the 2020-22 time frame. These scenarios were updated on 22 July 2020.

For details, see the following commentaries: https://www.dbrsmorningstar.com/research/359679/global-macroeconomic-scenarios-implications-for-credit-ratings and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

For more information on DBRS Morningstar considerations for European ABS transactions and Coronavirus Disease (COVID-19), please see the following commentary: https://www.dbrsmorningstar.com/research/360734.

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 ratings is “Rating European Consumer and Commercial Asset-Backed Securitisations” (13 January 2020).

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction 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 transaction, the analysis is based on the worst-case replenishment criteria set forth in the transaction legal documents.

Other methodologies referenced in this transaction are listed at the end of this press release.

These may be found at: http://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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include the originator, Santander Consumer Bank S.p.A., the originator’s owner, Santander Consumer Finance S.A., and the arranger, Banco Santander S.A.

DBRS Morningstar was provided with historical dynamic and static data on new and used vehicles split by private individuals and corporates.
-- Static quarterly default data from Q1 2009 to Q1 2020 both considering all default events and excluding restructured loans from the analysis.
-- Static quarterly recovery data for all subsets from Q1 2009 to Q1 2020 (excluding restructured loans).
-- Dynamic monthly delinquency and dynamic prepayment data covering January 2009 to February 2020 (excluding restructured loans).

DBRS Morningstar was further provided with:
-- Detailed stratification tables and loan-level data related to the collateral portfolio selected by Santander Consumer Bank S.p.A. as at 25 May 2020;

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

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 purposes of providing these ratings 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.

These ratings concern a newly issued financial instrument. These are the first DBRS Morningstar ratings on this financial instrument.

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

PORTFOLIO ASSUMPTIONS

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:

-- Portfolio cumulative default (PD) used: Expected PD of 5.1%, a 25% and 50% increase on the applicable PD.
-- Recovery rate used: Expected recovery rate of 32.1%.
-- Loss given default (LGD) used: Expected LGD of 67.9%, a 25% and 50% increase on the applicable LGD.

Scenario 1: A 25% increase in the expected default rate.
Scenario 2: A 50% increase in the expected default rate.
Scenario 3: A 25% increase in the LGD.
Scenario 4: A 25% increase in the expected default rate and a 25% increase in the LGD.
Scenario 5: A 50% increase in the expected default rate and a 25% increase in the LGD.
Scenario 6: A 50% increase in the LGD.
Scenario 7: A 25% increase in the expected default rate and a 50% increase in the LGD.
Scenario 8: A 50% increase in the expected default rate and a 50% increase in the LGD.

DBRS Morningstar concludes that the expected ratings under the eight stress scenarios are, respectively:

-- Class A 2020-2 notes: A (high) (sf), A (sf), A (high) (sf), A (sf), BBB (high) (sf), A (high) (sf), A (low) (sf), BBB (high) (sf).

-- Class B 2020-2 notes: BBB (low) (sf), BB (sf), BBB (sf), BBB (low) (sf), BB (sf), BBB (sf), BB (high) (sf), BB (high) (sf).

For further information on DBRS Morningstar 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: Michael Langholz, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 30 July 2020

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

--Rating European Consumer and Commercial Asset-Backed Securitisations (13 January 2020)
https://www.dbrsmorningstar.com/research/355533/rating-european-consumer-and-commercial-asset-backed-securitisations.
--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.
--Operational Risk Assessment for European Structured Finance Originators (28 February 2020), https://www.dbrsmorningstar.com/research/357430/operational-risk-assessment-for-european-structured-finance-originators.
--Rating European Structured Finance Transactions Methodology (21 July 2020)
https://www.dbrsmorningstar.com/research/364305/rating-european-structured-finance-transactions-methodology.

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://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.