Press Release

DBRS Morningstar Confirms Credit Ratings on FT Santander Consumo 4

Consumer Loans & Credit Cards

December 22, 2023

DBRS Ratings GmbH (DBRS Morningstar) confirmed its credit ratings on the following series of notes (collectively, the Rated Notes) issued by FT Santander Consumo 4 (the Issuer):

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

DBRS Morningstar does not rate the Series F Notes issued in this transaction.

The credit rating on the Series A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date. The credit ratings on the Series B, Series C, Series D, and Series E Notes address the ultimate payment of interest and the ultimate payment of principal on or before the legal final maturity date in June 2038.

The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- The portfolio performance, in terms of delinquencies and defaults, as of the September 2023 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement to the Rated Notes to cover the expected losses at their respective credit rating levels.

The transaction is a securitisation collateralised by receivables related to consumer loans granted by Banco Santander SA (Banco Santander; the originator) to private individuals residing in Spain. The originator also services the portfolio. The transaction closed in February 2021 and included an initial 13-month revolving period, which ended on the March 2022 payment date.

PORTFOLIO PERFORMANCE
As of September 2023, loans that were one to two months and two to three months in arrears represented 0.3% and 0.2% of the outstanding portfolio balance, respectively, while loans more than three months in arrears represented 3.8%. Gross cumulative defaults amounted to 1.3% of the aggregate initial portfolio balance.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar maintained its base case PD and LGD assumptions at 4.9% and 78.7%, respectively.

CREDIT ENHANCEMENT
The subordination of the respective junior obligations provides credit enhancement to the Rated Notes. As of the September 2023 payment date, credit enhancement to the Series A, Series B, Series C, Series D, and Series E Notes was 15.8%, 8.8%, 6.0%, 2.9%, and 0.0%, respectively. The credit enhancement levels have remained unchanged since DBRS Morningstar’s initial credit ratings due to the initial revolving period and the current pro rata amortisation of the Rated Notes. The Rated Notes will continue to pay on a pro rata basis unless certain events such as a breach of performance triggers, a servicer insolvency, or a servicer termination occur. Under these circumstances, the principal repayment of the Rated Notes will become fully sequential and the switch is not reversible.

The transaction benefits from an amortising cash reserve funded through the subscription proceeds of the Series F Notes, which represents 2.0% of the Rated Notes. The cash reserve can be used to cover senior costs and interest on the Series A Notes, Series B Notes, Series C Notes, Series D Notes, and Series E Notes. The cash reserve is currently at its targeted amount of EUR 15.75 million.

Banco Santander acts as the account bank for the transaction. Based on DBRS Morningstar’s Long-Term Issuer Rating of A (high) on Banco Santander (one notch below its Long Term Critical Obligations Rating (COR) of AA (low)), the downgrade provisions outlined in the transaction’s documents, and other mitigating factors inherent in the transaction’s structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the credit ratings assigned to the Rated Notes, as described in DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.

An interest rate swap is in place to hedge fixed-floating interest rate risk, with Banco Santander acting as the swap counterparty. Based on its COR and the collateral posting provisions included in the documentation, DBRS Morningstar considers the risk arising from the swap counterparty to be consistent with the credit ratings assigned to the Rated Notes, in accordance with DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology.

DBRS Morningstar’s credit ratings on the Rated Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

DBRS Morningstar’s credit ratings do not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of defaults to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/416784.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is the “Master European Structured Finance Surveillance Methodology” (11 December 2023), https://www.dbrsmorningstar.com/research/425148/master-european-structured-finance-surveillance-methodology.

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

The credit rating on the Series E notes materially deviates from the higher rating implied by the cash flow analysis. DBRS Morningstar considers a material deviation to be a rating difference of three or more notches between the assigned credit rating and the credit rating implied after application of the relevant methodologies; in this case, the rating is deemed to be highly sensitive to the sequential redemption trigger in the transaction and the timing of such trigger breach, which is dependent on future transaction performance.

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 credit rating action.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit 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/421590/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 credit ratings include investor reports provided by Santander de Titulización, S.G.F.T., S.A. 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 initial credit ratings, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the credit rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the credit rating process.

The last credit rating action on this transaction took place on 20 February 2023, when DBRS Morningstar confirmed its credit ratings on the Series A, Series B, Series C, Series D, and Series E Notes at AA (sf), A (high) (sf), A (low) (sf), BBB (low) (sf), and BB (low) (sf), respectively.

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

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit 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.
-- The base case PD and LGD of the current pool of loans for the Issuer are 4.9% and 78.7%, respectively.
-- The risk sensitivity overview below illustrates the credit ratings expected if the PD and LGD increase by a certain percentage over the base case assumption.

Series A Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AA (low) (sf)
-- 50% increase in LGD, expected credit rating of AA (low) (sf)
-- 25% increase in PD, expected credit rating of A (high) (sf)
-- 50% increase in PD, expected credit rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of A (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of BBB (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of BBB (sf)

Series B Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of BBB (high) (sf)
-- 50% increase in LGD, expected credit rating of BBB (high) (sf)
-- 25% increase in PD, expected credit rating of BBB (high) (sf)
-- 50% increase in PD, expected credit rating of BBB (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of BBB (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of BBB (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of BB (high (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of BB (high) (sf)

Series C Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of BBB (low) (sf)
-- 50% increase in LGD, expected credit rating of BBB (low) (sf)
-- 25% increase in PD, expected credit rating of BBB (low) (sf)
-- 50% increase in PD, expected credit rating of BBB (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of BB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of BB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of BB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of BB (low) (sf)

Series D Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of BB (high) (sf)
-- 50% increase in LGD, expected credit rating of BB (high) (sf)
-- 25% increase in PD, expected credit rating of BBB (low) (sf)
-- 50% increase in PD, expected credit rating of BB (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of BB (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of BB (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of B (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of B (sf)

Series E Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of BB (low) (sf)
-- 50% increase in LGD, expected credit rating of BB (low) (sf)
-- 25% increase in PD, expected credit rating of BB (low) (sf)
-- 50% increase in PD, expected credit rating of B (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of B (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of B (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating below B (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating below B (low) (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://registers.esma.europa.eu/cerep-publication. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

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

Lead Analyst: Preben Cornelius Overas, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 28 January 2021

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 credit rating methodologies used in the analysis of this transaction 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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