Press Release

DBRS Morningstar Takes Rating Actions on Three SC Germany Auto Transactions

Auto

May 18, 2022

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the Class A Notes (collectively, the Notes) issued by SC Germany Auto 2016-2 UG (haftungsbeschränkt) (Auto 2016-2), SC Germany Auto 2018-1 UG (haftungsbeschränkt) (Auto 2018-1), and SC Germany Mobility 2019-1 UG (haftungsbeschränkt) (Mobility 2019-1):

Auto 2016-2:
-- Class A Notes upgraded to AA (sf) from AA (low) (sf)

Auto 2018-1:
-- Class A Notes confirmed at AAA (sf)

Mobility 2019-1:
-- Class A Notes confirmed at AAA (sf)

The ratings on the Notes address the timely payment of interest and the ultimate payment of principal on or before the respective legal final maturity dates in July 2032 for Auto 2016-2, December 2027 for Auto 2018-1, and May 2035 for Mobility 2019-1.

The rating actions follow annual reviews of the transactions and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the May 2022 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- No revolving period termination events to date (Mobility 2019-1);
-- Current available credit enhancement to the Notes to cover the expected losses at their respective rating levels.

The transactions are securitisations of German auto loan receivables originated by Santander Consumer Bank AG (SCB), a subsidiary of Santander Consumer Finance SA, which also acts as the servicer in the transactions. The transactions closed in July 2016, June 2018, and June 2019, respectively. Auto 2016-2 included a four-year revolving period that ended in July 2020, while Mobility 2019-1 includes a three-year revolving period, scheduled to end in July 2022.

PORTFOLIO PERFORMANCE
Auto 2016-2:
As of the May 2022 payment date, loans that were 0 to 30 days, 30 to 60 days, and 60 to 90 days delinquent represented 0.1%, 0.3%, and 0.1% of the outstanding portfolio balance, respectively, while loans more than 90 days delinquent amounted to 0.4% of the outstanding portfolio balance. Gross cumulative defaults amounted to 0.5% of the aggregate original portfolio balance, with cumulative recoveries of 31.4% to date.

Auto 2018-1:
As of the May 2022 payment date, loans that were 0 to 30 days, 30 to 60 days, and 60 to 90 days delinquent represented 0.2%, 0.5%, and 0.1% of the outstanding portfolio balance, respectively, while loans more than 90 days delinquent amounted to 0.4% of the outstanding portfolio balance. Gross cumulative defaults amounted to 0.4% of the original portfolio balance, with cumulative recoveries of 30.8% to date.

Mobility 2019-1:
As of the May 2022 payment date, loans that were 0 to 30 days, 30 to 60 days, and 60 to 90 days delinquent represented 0.1%, 0.2%, and 0.1% of the outstanding portfolio balance, respectively, while loans more than 90 days delinquent amounted to 0.2%. Gross cumulative defaults amounted to 0.4% of the original aggregate portfolio balance, with cumulative recoveries of 29.6% to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
For Auto 2016-2, DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 2.7% and 59.0%, respectively. For Auto 2018-1, DBRS Morningstar updated its base case PD and LGD assumptions to 1.2% and 68.3%, respectively. For Mobility 2019-1, DBRS Morningstar maintained its base case PD and LGD assumptions at 2.3% and 64.7%, respectively, based on a worst case portfolio composition.

CREDIT ENHANCEMENT
The subordination of the respective Class B Notes in the transactions provides credit enhancement to the Notes. As of the May 2022 payment dates, credit enhancement to the Class A Notes in Auto 2016-2 increased to 11.0% from 6.2%, at the time of the last annual review 12 months ago; credit enhancement to the Class A Notes in Auto 2018-1 increased to 55.8% from 23.2%; credit enhancement to the Class A Notes in Mobility 2019-1 was 8.5%, unchanged since the DBRS Morningstar initial rating because of the inclusion of the revolving period scheduled to end in July 2022.

Auto 2016-2 benefits from a nonamortising liquidity reserve, available to cover senior expenses and interest payments on the Class A and Class B Notes. As of the May 2022 payment date, the reserve was at its target level of EUR 15.0 million.

Auto 2018-1 benefits from an amortising liquidity reserve, available to cover senior expenses, swap payments, and interest on the Class A Notes. The reserves have a target balance equal to 1.0% of the outstanding principal balance of the Class A Notes, subject to a floor of EUR 1.0 million. As of the May 2022 payment date, the reserve was at its target of EUR 1.0 million.

Mobility 2019-1 benefits from an amortising liquidity reserve, available to cover senior expenses and interest on the Class A Notes. The reserve has a target balance equal to 0.5% of the outstanding principal balance of the Class A Notes, subject to a floor of EUR 1.0 million. As of the May 2022 payment date, the reserve was at its target of EUR 17.4 million.

Banco Santander S.A., Frankfurt Branch (Santander Frankfurt) acts as the account bank for Auto 2016-2, ABN AMRO Bank N.V. (ABN AMRO) acts as the account bank for Auto 2018-1, and Elavon Financial Services DAC (Elavon) acts as the account bank for Mobility 2019-1. Based on the DBRS Morningstar private ratings on Santander Frankfurt and Elavon, the DBRS Morningstar public Long Term Critical Obligations Rating (COR) of AA on ABN AMRO, the respective downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structures, DBRS Morningstar considers the risk arising from the exposures to the account banks to be consistent with the ratings assigned to the Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DZ BANK AG Deutsche Zentral-Genossenschaftsbank (DZ Bank) and ABN AMRO act as the swap counterparties for Auto 2018-1. DBRS Morningstar’s public Long Term CORs of AA on DZ Bank and ABN AMRO are consistent with the First Rating Threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the transaction structures in Intex DealMaker.

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/396929.

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 2022).

Other methodologies referenced in these transactions are listed at the end of this press release. These may be found at: https://www.dbrsmorningstar.com/about/methodologies.

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transactions in accordance with the principal methodology.

For Mobility 2019-1, an asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis continues to consider potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.

A review of the transactions legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

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 monthly investor and servicer reports provided by SCB and 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 respective 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 purpose 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 actions on Auto 2016-2 and Auto 2018-1 took place on 19 May 2021, when DBRS Morningstar upgraded the rating of the Class A Notes to AA (low) (sf) from A (sf) for Auto 2016-2 and confirmed the rating of the Class A Notes at AAA (sf) for Auto 2018-1.

The last rating action on Mobility 2019-1 took place on 21 June 2021, when DBRS Morningstar upgraded the rating of the Class A Notes to AAA (sf) from A (sf).

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 ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the ratings (the base case):

-- DBRS Morningstar expected a lifetime base case PD and LGD for the pool 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.
-- For Auto 2016-1, the base case PD and LGD of the current pool of loans for the Issuer are 2.7% and 59.0%, respectively. For Auto 2018-1, the base case PD and LGD of the current pool of loans for the Issuer are 1.2% and 68.3%, respectively. For Mobility 2019-1, the base case PD and LGD of the current pool of loans for the Issuer are 2.3% and 64.7%, respectively.
-- The risk sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating on the Auto 2016-2 Class A Notes would be expected to remain at AA (sf), ceteris paribus. If the PD increases by 50%, the rating on the Auto 2016-2 Class A Notes would be expected to remain at AA (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating on the Auto 2016-2 Class A Notes would be expected to remain at AA (sf).

Auto 2016-2 Class A 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 (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (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)

Auto 2018-1 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)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

Mobility 2019-1 Series A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of 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: 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: Daniel Rakhamimov, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 28 July 2016 (Auto 2016-2); 30 May 2018 (Auto 2018-1); 27 June 2019 (Mobility 2019-1)

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 these transactions can be found at: https://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 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.

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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