Press Release

DBRS Morningstar Confirms Ratings on Auto ABS Spanish Loans 2020-1 FT

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October 15, 2021

DBRS Ratings GmbH (DBRS Morningstar) confirmed the ratings on the following series of notes issued by Auto ABS Spanish Loans 2020-1 FT (the Issuer):

-- Series A Notes at AA (high) (sf)
-- Series B Notes at A (high) (sf)
-- Series C Notes at A (low) (sf)
-- Series D Notes at BB (sf)
-- Series E Notes at B (high) (sf)

The rating on the Series A Notes addresses the timely payment of interest and the ultimate repayment of principal by the legal final maturity date in June 2031. The ratings on the Series B Notes, Series C Notes, Series D Notes, and Series E Notes (together with the Series A Notes, the Notes) address the ultimate payment of interest and the ultimate repayment of principal by the legal final maturity date.

The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies and defaults, as of the September 2021 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the receivables;
-- Current available credit enhancement to the rated notes to cover the expected losses and residual value (RV) losses assumed at their respective rating levels;
-- No replenishment period termination event; and
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

The transaction represents the issuance of the Notes backed by a portfolio of approximately EUR 600 million of fixed-rate receivables related to standard and balloon auto loans granted by PSA Financial Services (the originator) to private individuals residing in Spain for the acquisition of new or used vehicles. The originator also services the portfolio. The unrated Series F Notes funded the cash reserve.

The transaction has exposure to RV risk that arises from the balloon loans, which have equal payment instalments before maturity and a final large balloon instalment on the last payment date. The borrower has the option to return the vehicle instead of paying the final balloon instalment. The borrower must comply with certain requirements to fulfil its obligations (including but not limited to giving consent to the sale of the vehicle and to the application of the proceeds of sale of the vehicle toward repayment of the loan up to its full repayment), the vehicle must be returned in adequate conditions and meet certain requirement in terms of maintenance and mileage. If the proceeds of sale were not sufficient to repay the loan in full, the borrower would be free from any further repayment obligation, hence exposing the Issuer to RV risk.

In this transaction, the RV risk is mitigated by the undertaking of the PSA Group (the manufacturer) to repurchase the vehicle at a price equal to the balloon amount. DBRS Morningstar believes that the undertaking mitigates but does not remove the Issuer’s RV risk, and benefits are limited to the manufacturer’s credit standing and financial strength. The manufacturer’s undertaking is considered to be validly transferred to the Issuer.

The transaction includes a 13-month revolving period scheduled to end in December 2021. During the revolving period, the originator may offer additional receivables that the Issuer purchases provided that eligibility criteria and concentration limits set out in the transaction documents are satisfied. The revolving period may end earlier than scheduled if certain events occur, such as the breach of performance triggers, the originator’s insolvency, or the servicer’s replacement. No revolving period termination event has occurred to date.

The repayment of the Notes will start after the end of the revolving period on the first principal payment date in January 2022 on a pro rata basis unless certain events, such as the breach of performance triggers, the servicer’s insolvency, or the servicer’s termination, occur (subordination events). Under these circumstances, the principal repayment of the Notes will become fully sequential and the switch is not reversible. No subordination event has occurred to date.

PORTFOLIO PERFORMANCE
As of the September 2021 payment date, loans that were one to two months and two to three months delinquent represented 0.32% and 0.02% of the portfolio balance, respectively. There are no loans more than 90 days in arrears. Gross cumulative defaults amounted to 0.11% of the aggregate original and subsequent portfolios, 35.89% of which have been recovered.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar maintained its base case PD and LGD assumptions at 2.2% and 60.0%, respectively. DBRS Morningstar used the following for RV loss: 11.98%, 10.12%, 8.97%, 5.72%, and 4.25% for the AA (high) (sf), A (high) (sf), A (low) (sf), BB (sf), and B (high) (sf)) scenarios, respectively.

CREDIT ENHANCEMENT
The subordination of the junior notes and the cash reserve provide credit enhancement. As of the September 2021 payment date, credit enhancement to the Series A, Series B, Series C, Series D, and Series E Notes was 20.18%, 12.65%, 6.40%, 2.30%, and 0.85%, respectively, unchanged from closing given that the transaction is still in the revolving period.

The transaction benefits from an amortising EUR 5.1 million cash reserve funded through the subscription proceeds of the Series F Notes. The cash reserve can be used to cover senior costs and interest on the Notes.

Banco Santander SA (Santander) acts as the account bank for the transaction. Based on the Santander’s reference rating of A (high), which is one notch below its DBRS Morningstar’s Long Term Critical Obligations Rating (COR) of AA (low), the downgrade provisions outlined in the transaction documents, and structural mitigants inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to Santander to be consistent with the ratings assigned to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

Santander also acts as the interest rate CAP agreement counterparty for the transaction. DBRS Morningstar's COR of Santander at AA (low) is above the First Rating Threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an immediate economic contraction, leading in some cases to increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may continue to increase in the coming months for many ABS transactions. The ratings are based on additional analysis to expected performance as a result of the global efforts to contain the spread of the coronavirus.

For this transaction, DBRS Morningstar conducted additional sensitivity analysis to determine that the transaction benefits from sufficient liquidity support to withstand potentially high payment holiday levels in the portfolio. As per the eligibility criteria, there are no loans under coronavirus moratoriums in the portfolio.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 8 September 2021. DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/384150/baseline-macroeconomic-scenarios-for-rated-sovereigns and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

On 8 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated ABS transactions in Europe. For more details, please see: https://www.dbrsmorningstar.com/research/360734/european-abs-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at: https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (8 February 2021).

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.

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.

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis considers potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.

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/381451/global-methodology-for-rating-sovereign-governments.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The sources of data and information used for these ratings include transaction reports and information provided by Titulización de Activos S.G.F.T., S.A. as well as loan-level data provided by the European DataWarehouse GmbH.

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

At the time of the initial ratings, 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.

The last rating action on this transaction took place on 15 October 2020, when DBRS Morningstar finalised its provisional ratings on the Series A, Series B, Series C, Series D, and Series E Notes at AA (high) (sf), A (high) (sf), A (low) (sf), BB (sf), and B (high) (sf), respectively.

The lead analyst responsibilities for this transaction have been transferred to Helvia Meana.

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 with the parameters used to determine the rating (the base case):

-- PD used: Expected base case PD of 2.2%, and 14.3%, 9.6%, 7.3%, 3.3% and 2.9%, respectively, for AA (high) (sf), A (high) (sf), A (low) (sf), BB (sf), and B (high) (sf) scenarios, on a 25% and 50% increase in the applicable PD.
-- Recovery rate used: Expected recovery rate of 40.0%.
-- Loss given default (LGD) used: Expected LGD of 71.2%, 68.8%, 67.2%, 63.2% and 61.6% respectively, for AA (high) (sf), A (high) (sf), A (low) (sf), BB (sf), and B (high) (sf) scenarios, on a 25% and 50% increase in the applicable LGD.
-- Residual Value Loss used: 11.98%, 10.12%, 8.97%, 5.72% and 4.25%% respectively, for AA (high) (sf), A (high) (sf), A (low) (sf), BB (sf), and B (high) (sf)) scenarios, on a 25% and 50% increase in the applicable RV loss.

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

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

-- Series A Notes: AA (high) (sf), AA (sf), AA (high) (sf), AA (high) (sf), AA (low) (sf), AA (high) (sf), AA (sf), and A (high) (sf).
-- Series B Notes: A (high) (sf), BBB (sf), A (high) (sf), A (sf), BBB (sf), A (high) (sf), A (sf), and BBB (sf).
-- Series C Notes: BBB (low) (sf), B (low) (sf), A (low) (sf), BB (sf), B (low) (sf), A (low) (sf) and BB (sf) for scenarios 1, 2, 3, 4, 5, 6 and 7, and no quantitative rating is obtained for the scenario 8.
-- Series D Notes: BB (sf) and BB (low) (sf) for scenarios 3 and 6, and no quantitative rating is obtained for any other stress scenarios.
-- Series E Notes: B (sf) and B (sf) for scenarios 3 and 6, and no quantitative rating is obtained for any other stress scenarios.

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. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Helvia Meana, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 17 September 2020

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: http://www.dbrsmorningstar.com/about/methodologies.

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.

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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