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Rating Action:

Moody's assigns definitive ratings to SME ABS notes issued by FONDO DE TITULIZACION PYMES SANTANDER 15

10 Dec 2019

EUR 3,150 million of securities rated

Madrid, December 10, 2019 -- Moody's Investors Service ("Moody's") has today assigned the following definitive ratings to the debts issued by FONDO DE TITULIZACION PYMES SANTANDER 15 (the Issuer):

....EUR 2400M Serie A Notes due April 2051, Definitive Rating Assigned A2 (sf)

....EUR 600M Serie B Notes due April 2051, Definitive Rating Assigned Caa3 (sf)

....EUR 150M Serie C Notes due April 2051, Definitive Rating Assigned Ca (sf)

The transaction is a 2-year revolving cash securitisation of standard loans and credit lines granted by Banco Santander S.A. (Spain) ("Santander", Long Term Deposit Rating: A2 Not on Watch /Short Term Deposit Rating: P-1 Not on Watch) mainly to small and medium-sized enterprises (SMEs) and self-employed individuals, as well as corporates, located in Spain.

RATINGS RATIONALE

The ratings of the Notes are primarily based on the analysis of the credit quality of the underlying portfolio, the structural integrity of the transaction, the roles of external counterparties and the protection provided by credit enhancement.

In Moody's view, the strong credit positive features of this deal include, among others:

(i) a relatively short weighted average life of around 2 years (which can increase to 3.5 years during the revolving period);

(ii) a granular pool: the effective number of obligors is 1,499;

(iii) a geographically well-diversified portfolio;

(iv) Stop replenishment triggers

(v) 20% subordination and a reserve fund of 5% supporting the Series A notes; and

(vi) refinanced and restructured assets have been excluded from the pool.

However, the transaction has several challenging features:

(i) the 2-year revolving period during which the issuer can purchase additional assets can increase the volatility of the portfolio performance;

(ii) the revolving criteria are relatively broad, in particular they can allow for an increase in the sector concentration;

(iii) no interest rate hedge mechanism is in place while almost 45% of the portfolio balance (which can increase to 55% during the revolving period) comprises fixed rate assets and the notes pay a floating rate coupon;

(iv) a complex mechanism that allows the Issuer to compensate daily the increase on the disposed amount of certain credit lines with the decrease of the disposed amount from other lines, and/or the amortisation of the standard loans; and

(v) a strong linkage to Santander related to its originator, servicer, accounts holder and liquidity line provider roles.

Key collateral assumptions:

Mean default rate: Moody's assumed a mean default rate of 6.1% over a weighted average life of 2.0 years (equivalent to a Ba3 proxy rating as per Moody's Idealized Default Rates). This assumption is based on: (i) the available historical vintage data; (ii) the performance of the previous transactions originated by Santander; and (iii) the characteristics of the loan-by-loan portfolio information. Moody's took also into account the current economic environment and its potential impact on the portfolio's future performance, as well as industry outlooks or past observed cyclicality of sector-specific delinquency and default rates. In addition, given the portfolio replenishment criteria which introduce large volatility in the portfolio composition in particular with regards to industry concentration and portfolio weighted average life, Moody's stressed the mean default rate for the replenished portfolios by increasing it to 13.8% which corresponds to a B1/B2 over a weighted average life of 3.5 years.

Default rate volatility: Moody's assumed a coefficient of variation (i.e. the ratio of standard deviation over the mean default rate explained above) of 59.4%, as a result of the analysis of the portfolio concentrations in terms of single obligors and industry sectors.

Recovery rate: Moody's assumed a stochastic recovery rate with a 35% mean, primarily based on the characteristics of the collateral-specific loan-by-loan portfolio information and the portfolio replenishment criteria, complemented by the available historical data.

Portfolio credit enhancement: the aforementioned assumptions correspond to a portfolio credit enhancement of 23% for the initial portfolio and around 40% for the replenished portfolio considering the high volatility introduced through the flexibility offered by the replenishment criteria.

As of November 2019, the audited provisional asset pool of underlying assets was composed of a portfolio of 32,102 contracts amounting to EUR 3,676 million. In terms of outstanding amounts, around 70.3% corresponds to standard loans and 29.7% to credit lines. The top industry sector in the pool, in terms of Moody's industry classification, is Beverage, Food & Tobacco (23.1%). The top borrower group represents 0.46% of the portfolio and the effective number of obligors is 1,499. The assets were originated mainly between 2014 and 2019 and have a weighted average seasoning of 2.67 years and a weighted average remaining term of 3.99 years. The interest rate is fixed for 44.8% of the pool while the remaining part of the pool bears a floating interest rate. Geographically, the pool is concentrated mostly in the regions of Catalonia (17.6%) and Madrid (15.8%). At closing, any loans in arrears more than 30 days will be excluded from the final pool.

Around 17.6% of the portfolio is secured by first-lien mortgages over different types of properties.

Key transaction structure features:

Reserve fund: The transaction benefits from a EUR 150 million reserve fund, fully funded at closing with the proceeds of Serie C notes (which is not collateralised by the asset portfolio), equivalent to 5% of the balance of the Series A and Series B Notes at closing. The reserve fund provides both credit and liquidity protection to the Notes.

Counterparty risk analysis:

Santander will act as servicer of the assets for the Issuer, while Santander de Titulizacion, S.G.F.T., S.A. (not rated) will be the management company (Gestora) of the transaction.

All of the payments under the assets in the securitised pool are paid into the collection account at Santander. There is a sweep of the funds held in the collection account into the Issuer accounts every two days. The Issuer accounts are held at Santander with a transfer requirement if the ratings of the account bank falls below Baa3 or P-3.

Principal Methodology:

The principal methodology used in these ratings was 'Moody's Global Approach to Rating SME Balance Sheet Securitizations' published in July 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Factors that would lead to an upgrade or downgrade of the ratings:

The Notes' ratings are sensitive to the performance of the underlying portfolio, which in turn depends on economic and credit conditions that may change. The evolution of the associated counterparties risk, the level of credit enhancement and Spain's country risk could also impact the Notes' ratings.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

The analysis relies on an assessment of collateral characteristics to determine the collateral loss distribution, that is, the function that correlates to an assumption about the likelihood of occurrence to each level of possible losses in the collateral. As a second step, Moody's evaluates each possible collateral loss scenario using a model that replicates the relevant structural features to derive payments and therefore the ultimate potential losses for each rated instrument. The loss a rated instrument incurs in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the rated instrument.

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Gaston Wieder
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Carole Gintz
Associate Managing Director
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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