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Rating Action:

Moody's assigns provisional ratings to SANTANDER EMPRESAS 9's SME CDO notes

29 Mar 2011

EUR5,350 million of debt securities rated

Madrid, March 29, 2011 -- Moody's Investors Service has assigned provisional (P) ratings to two series of notes to be issued by FTA SANTANDER EMPRESAS 9 (the Fondo):

- EUR4,226.5 million series A notes, assigned (P) Aaa (sf)

- EUR1,123.5 million series B notes, assigned (P) Caa1 (sf)

RATINGS RATIONALE

FTA SANTANDER EMPRESAS 9 is a securitisation of standard loans and credit lines mainly granted by Banco Santander (Aa2/P-1; Negative Outlook) to corporate and small and medium-sized enterprise (SME).

At closing, the Fondo -- a newly formed limited-liability entity incorporated under the laws of Spain -- will issue two series of rated notes. Santander will act as servicer of the loans and credit lines for the Fondo, while Santander de Titulización S.G.F.T., S.A. will be the management company (Gestora) of the Fondo.

As of February 2011, the provisional asset pool of underlying assets was composed of a portfolio of almost 30,000 contracts granted to companies in Spain. In terms of outstanding amounts, 68% corresponds to standard loans and 32% to credit lines. The assets were originated mainly between 2006 and 2010. The weighted-average seasoning is 1.0 year for the loans sub-pool and 0.7 years for the credit-lines sub-pool, while the weighted-average remaining terms for these pools are 4.2 years and 0.5 years, respectively. Around 6.6% of the portfolio is secured by first-lien mortgage guarantees. Geographically, the pool is concentrated mostly in Madrid (30%), Catalonia (14%) and Andalusia (11%). At closing, there will be no loans more than 30 days in arrears.

In Moody's view, the strong credit positive features of this deal include, among others: (i) a relatively short weighted average life of 2.2 years; (ii) a swap agreement guaranteeing an excess spread of 1.0%; and (iii) a geographically well-diversified pool. However, the transaction has several challenging features: (i) a low portfolio granularity (effective number of obligors below 300); (ii) a relatively high exposure to the construction and building industry sector (33.6% according to Moody's industry classification); (iii) a low percentage of assets secured by a first-lien mortgage guarantee (6.6%); and (iv) a complex mechanism that allows the Fondo 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. These characteristics were reflected in Moody's analysis and provisional ratings, where several simulations tested the available credit enhancement and 20% reserve fund to cover potential shortfalls in interest or principal envisioned in the transaction structure.

Moody's analysis focused primarily on (i) an evaluation of the underlying portfolio of assets; (ii) historical performance information and other statistical information; (iii) the credit enhancement provided by the pool and swap spreads; and (iv) the cash reserve and the subordination of the notes.

The resulting key assumptions of Moody's analysis for this transaction are a mean default rate of 14.1%, with a coefficient of variation of 45% and a stochastic mean recovery rate of 37%.

As mentioned in the methodology, Moody's used ABSROM cash-flow model to determine the potential loss incurred by the notes under each loss scenario. In parallel, Moody's also considered non-modelled risks (such as counterparty risk).

The ratings address the expected loss posed to investors by the legal final maturity of the notes (March 2048). In Moody's opinion, the structure allows for timely payment of interest and ultimate payment of principal on series A and B at par on or before the rated final legal maturity date. Moody's ratings address only the credit risks associated with the transaction. Other non-credit risks have not been addressed, but may have a significant effect on yield to investors.

The V Score for this transaction is Medium/High, which is in line with the score assigned for the Spanish SME sector and representative of the volatility and uncertainty in the Spanish SME sector. V-Scores are a relative assessment of the quality of available credit information and of the degree of dependence on various assumptions used in determining the rating. For more information, the V-Score has been assigned accordingly to the report "V Scores and Parameter Sensitivities in the EMEA Small-to-Medium Enterprise ABS Sector," published in June 2009.

Moody's also ran sensitivities around the key parameters for the rated notes. For instance, if the assumed default probability of 14.1% used in determining the initial rating was changed to 18.1% and the recovery rate of 37% was changed to 27%, the model-indicated rating for the series A notes would change to A2 from Aaa, while the series B model indicated rating would remain Caa1.

The principal methodologies used in this rating were Refining the ABS SME Approach: Moody's Probability of Default assumptions in the rating analysis of granular Small and Mid-sized Enterprise portfolios in EMEA published in March 2009 and Moody's Approach to Rating Granular SME Transactions in Europe, Middle East and Africa, published in June 2007.

Moody's Investors Service did not receive or take into account a third party due diligence report on the underlying assets or financial instruments in this transaction.

REGULATORY DISCLOSURES

The rating has been disclosed to the rated entity or its designated agents and issued with no amendment resulting from that disclosure.

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Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Madrid
Luis Mozos
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Frankfurt am Main
Thorsten Klotz
MD - Structured Finance
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Espana, S.A.
Barbara de Braganza, 2
Madrid 28004
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns provisional ratings to SANTANDER EMPRESAS 9's SME CDO notes
No Related Data.
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