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Rating Action:

Moody's upgrades three tranches and downgrades one tranche in FTA SANTANDER EMPRESAS 3

04 Jul 2014

Frankfurt am Main, July 04, 2014 -- Moody's Investors Service has today upgraded to A1 (sf) from A3 (sf) on review for upgrade, the ratings on Class A2, A3 and B notes of FTA SANTANDER EMPRESAS 3 (SANTANDER EMPRESAS 3) and downgraded to Caa2 (sf) from B3 (sf) on review for upgrade, the rating on Class D notes. At the same time, the rating agency confirmed the Ba1 (sf) rating on Class C notes that it had placed on review for upgrade on 17 March 2014, and affirmed the ratings on Class E and F notes at Ca (sf) and C (sf) respectively. The upgrade of the Class A2, A3 and B notes and the confirmation of the Class C note result from the Spanish country ceiling upgrade to A1 from A3 on 21 February 2014, stable performances of the granular part of the portfolio and increased credit enhancement on the back of deleveraging. The Class D downgrade reflects the performance deterioration of the largest exposure in the portfolio, as the loan representing 9.3% of the portfolio became delinquent in Q1 2014.

Today's rating action concludes the review for upgrade of the ratings on the Class A2, A3, B, C and D notes initiated by Moody's on 17 March 2014, following Moody's raising of the Spanish country ceiling to A1 from A3 on 21 Feb 2014 to reflect improvements in institutional strength and reduced susceptibility to event risk associated with lower government liquidity and banking sector risks (https://www.moodys.com/research/PR_292078).

SANTANDER EMPRESAS 3 is a Spanish asset-backed securities (ABS) transaction primarily backed by loans to small and medium-sized enterprises (SMEs), although the pool also includes loans to large companies. Banco Santander S.A. (Spain) (Santander, Baa1/P-2) originated the transactions.

See towards the end of the ratings rationale section of this press release for a detailed list of affected ratings.

RATINGS RATIONALE

Today's upgrades and confirmation reflect the increase of the Spanish ceiling, increased credit enhancement resulting from portfolio amortisation and stable performances of the granular portfolio.

The downgrade of the rating on the Class D notes results from the portfolios' exposure to concentration risk, as the top five borrowers account for 15.03% of the total portfolio, with an effective number of only 90 loans. A default of the largest loan would directly affect Class D Notes, especially in the case of limited recovery. The largest borrower is a real estate developer, accounting for 9.3% of the pool, and has been delinquent since January 2014. The economic context in Spain makes it likely that this loan, in case of default, will suffer a substantial loss, which should further increase the transaction's asset-liability mismatch.

-- Moody's revises key collateral assumptions

Moody's updated its default rate assumption to account for the long scheduled weighted average life (WAL) of the pool (8.5 years assuming no defaults and no prepayments), given the low pool factor standing at 13.8%. As a result, the ba3 pool quality translates into a 14.25% default probability (DP) for the current pool, excluding the large delinquent loan, which Moody's treated as already defaulted. Thus, the rating agency's default assumption on the original balance increased to 8.14% from 6.20% previously. Moody's also increased its recovery assumption to 50% from 40% to reflect the observed levels of recoveries to date, although Moody's base case assumes limited recoveries for the large defaulted loan. The longer WAL, higher DP and recovery rates together with an increased coefficient of variation to 83.3% from 74.9% result in a higher portfolio credit enhancement of 24.5%, compared with 21.5% previously. Although we observe a stable performance on the granular portfolio and positive recovery trend, the increased PCE reflects the longer portfolio WAL at this stage of the transaction.

-- Counterparty exposure risk

The conclusion of Moody's review also reflects exposure to 1) Santander, which acts as the servicer, swap counterparty and collection account bank; and 2) Santander UK PLC (A2/P-1), which acts as issuer account bank.

Today's rating action incorporates exposure to commingling risk with Santander. In its role as servicer, Santander transfers the collections from the portfolio within two days from the collection account to Santander UK accounts.

As part of its analysis, Moody's also assessed the exposure to Santander as swap counterparty. The revised/confirmed ratings on the notes are consistent with this exposure.

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was "Moody's Global Approach to Rating SME Balance Sheet Securitizations", published in January 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING:

Factors that could lead to a downgrade of the ratings affected by today's action are (1) worse-than-expected performance of the underlying collateral; (2) deterioration in the credit quality of the counterparties; and (3) an increase in Spain's sovereign risk.

Factors that could lead to an upgrade of the ratings affected by today's action are better-than-expected performance of the underlying assets, and a decline in both counterparty and sovereign risk. In particular, higher-than-expected recoveries on the largest loan in the portfolio would have a credit-positive effect.

LIST OF AFFECTED RATINGS

Issuer: FTA SANTANDER EMPRESAS 3

....EUR1800M A2 Notes, Upgraded to A1 (sf); previously on Mar 17, 2014 A3 (sf) Placed Under Review for Possible Upgrade

....EUR627.5M A3 Notes, Upgraded to A1 (sf); previously on Mar 17, 2014 A3 (sf) Placed Under Review for Possible Upgrade

....EUR39.7M B Notes, Upgraded to A1 (sf); previously on Mar 17, 2014 A3 (sf) Placed Under Review for Possible Upgrade

....EUR117.3M C Notes, Confirmed at Ba1 (sf); previously on Mar 17, 2014 Ba1 (sf) Placed Under Review for Possible Upgrade

....EUR70M D Notes, Downgraded to Caa2 (sf); previously on Mar 17, 2014 B3 (sf) Placed Under Review for Possible Upgrade

....EUR45.5M E Notes, Affirmed Ca (sf); previously on Mar 12, 2010 Downgraded to Ca (sf)

....EUR45.5M F Notes, Affirmed C (sf); previously on May 31, 2007 Definitive Rating Assigned C (sf)

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.

Moody's did not receive or take into account a third-party assessment on the due diligence performed regarding the underlying assets or financial instruments related to the monitoring of this transaction in the past six months.

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.

As the section on loss and cash flow analysis describes, 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 or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Ludovic Thebault
Analyst
Structured Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Mehdi Ababou
Vice President - Senior Analyst
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's upgrades three tranches and downgrades one tranche in FTA SANTANDER EMPRESAS 3
No Related Data.
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