Scope Ratings (Scope) has today taken the following rating actions on the notes issued by FT PYMES SANTANDER 12:

Class A (ISIN: ES0305107007): affirmed at AAA_SF
Class B (ISIN: ES0305107015): upgraded to BB-_SF, from B+_SF
Class C (ISIN: ES0305107023): affirmed at C_SF

Rating rationale

The rating actions are driven by the prepayments made and the increase in credit enhancement. The portfolio has amortised to EUR 1,486.8m, down from EUR 2,800m at closing, according to the issuer report dated 16 September 2016. The rating actions also reflect the limited portfolio losses, the credit quality of Banco Santander (A+/S-1/Stable) and the still positive macroeconomic outlook on the Spanish economy. Scope assumes the Spanish economy will continue to recover in the short term, although long-term uncertainty remains due to the high unemployment and budget imbalances.

The affirmation of the class A notes reflects the tranche’s amortisation to EUR 843.1m from EUR 2,100m at closing. The amortisation has resulted in the tranche’s credit enhancement increasing to 54.7% (53.1% when considering only performing assets and cash in the reserve fund), from 30.0% at closing. The class A exposure to Banco Santander is limited because of the short weighted average life of 1.08 years and Scope’s Stable Outlook on the bank. The class A rating also reflects the improved macroeconomic outlook on Spain over the remaining expected weighted average life of the notes, resulting in immaterial sovereign risk.

The rating upgrade of the class B notes to BB-_SF from B+_SF primarily reflects the portfolio’s fast amortisation and the increase in credit enhancement to 9.6% from 5% at closing. The reserve fund cash is the only source of hard credit enhancement for the class B notes, which results in an excessive exposure to Banco Santander, the account bank. The credit enhancement of the class B will remain at 10% until the reserve fund reaches the absolute minimum, at 2.5% of the original balance.

Scope has affirmed the class C ratings due to the tranche’s long life and the reduction in excess spread (the only source of credit enhancement available to this tranche).

Portfolio performance

Fast amortisation. The structure has significantly delevered after 10 months, as evidenced by the class A amortisation factor (40.2% of the initial balance). Scope still considers the pool to be granular, with more than 24,000 exposures outstanding. Scope expects amortisation to continue on the same course because of the long maturity of the mortgages and the financial weakness of the obligors.

Low delinquencies. Delinquency levels are currently below Scope’s expectations. Total delinquencies are 2.94% of current balance, of which 53.3% are ‘less than 30 days’ delinquencies with a high likelihood of being subsequently cured; ‘above 90 days’ delinquencies are slowly rising but stand at a low 0.51% of the current portfolio. Defaults amount to 0.02% of the total securitised balance.

Scope has received quarterly reporting covering the first 10 months after the transaction closed.

Modelling assumptions

Scope has taken into account the impact of the passage of time and portfolio amortisation, but has not modified the key modelling assumptions considered for the new issue rating analysis as of closing (default rate, cure rate, recovery rate and coefficient of variation specific to credit lines, unsecured loans and mortgages – see the new issue rating report available freely at www.scoperatings.com). Following the amortisation of the portfolio, Scope's modelling assumptions reflect those applied for mortgage loans and unsecured loans, respectively using weights of 13.4% and 86.6%.

FT PYMES SANTANDER 12 (PYMES 12) is a true-sale securitisation of a EUR 2,800m portfolio of mortgage-secured loans (15%), unsecured loans (67%) and credit lines (17%) granted to small- and medium-sized enterprises (SMEs) by Banco Santander to finance diverse business-related needs. The assets are originated by Santander, as well as Banesto and BANIF, two banking franchises fully integrated in Santander. The transaction closed on 2 December 2015.

For a reference of Scope’s rating approach, see the SME ABS Rating Methodology, published June 2016, the General Structured Finance Rating Methodology, published August 2016, and the Methodology for Counterparty Risk in Structured Finance, published August 2016.

Legal and regulatory disclosures

Important information
Information pursuant to Regulation (EC) No 1060/2009 on credit rating agencies, as amended by Regulations (EU) No. 513/2011 and (EU) No. 462/2013

Responsibility
The party responsible for the dissemination of the financial analysis is Scope Ratings AG, Berlin, District Court for Berlin (Charlottenburg) HRB 161306 B, Executive Board: Torsten Hinrichs (CEO), Dr. Stefan Bund, Dr. Sven Janssen.
The rating analysis has been prepared by Carlos Terre, Lead Analyst
Responsible for approving the rating: Guillaume Jolivet, Committee Chair

Rating history
Instrument | ISIN | Date | Rating action | Rating
ES0305107007 | 04 December 2015 | Preliminary | (P) AAA_SF
ES0305107007 | 14 December 2015 | New | AAA¹_SF
ES0305107015 | 04 December 2015 | Preliminary | (P) B+_SF
ES0305107015 | 14 December 2015 | New | B+² _SF
ES0305107023 | 04 December 2015 | Preliminary | (P) C_SF
ES0305107023 | 14 December 2015 | New | C_SF

Editor's Note: 1 Rating in the disclosure of the rating history was published on 9 December 2016 as A_SF, corrected to AAA_SF on 4 December 2017. 2 Rating in the disclosure of the rating history was published on 9 December 2016 as B-_SF, corrected to B+_SF on 4 December 2017.

Information on interests and conflicts of interest
The rating was prepared independently by Scope Ratings but for a fee based on a mandate of the issuer of the investment, represented by the management company.
As at the time of the analysis, neither Scope Ratings AG nor companies affiliated with it hold any interests in the rated entity or in companies directly or indirectly affiliated to it. Likewise, neither the rated entity nor companies directly or indirectly affiliated with it hold any interests in Scope Ratings AG or any companies affiliated to it. Neither the rating agency, the rating analysts who participated in this rating, nor any other persons who participated in the provision of the rating and/or its approval hold, either directly or indirectly, any shares in the rated entity or in third parties affiliated to it. Notwithstanding this, it is permitted for the above-mentioned persons to hold interests through shares in diversified undertakings for collective investment, including managed funds such as pension funds or life insurance companies, pursuant to EU Rating Regulation (EC) No 1060/2009. Neither Scope Ratings nor companies affiliated with it are involved in the brokering or distribution of capital investment products. In principle, there is a possibility that family relationships may exist between the personnel of Scope Ratings and that of the rated entity. However, no persons for whom a conflict of interests could exist due to family relationships or other close relationships will participate in the preparation or approval of a rating.

Key sources of information for the rating
Monthly and quarterly investor reports, latest dated September 2016, covering the first 10 months since the closing of the transaction, proprietary information from Scope Ratings AG.
Scope Ratings considers the quality of the available information on the evaluated entity to be satisfactory. Scope ensured as far as possible that the sources are reliable before drawing upon them, but did not verify each item of information specified in the sources independently.

Examination of the rating by the rated entity prior to publication
Prior to publication, the rated entity was given the opportunity to examine the rating and the rating drivers, including the principal grounds on which the credit rating or rating outlook is based. The rated entity was subsequently provided with at least one full working day, to point out any factual errors, use of confidential information, or to appeal the rating decision and deliver additional material information. Following that examination, the rating was not modified.

Methodology
The methodology applicable for this rating is ‘SME ABS Rating Methodology’, dated June 2016. Scope also applied the ‘Methodology for Counterparty Risk in Structured Finance’, dated August 2016. Both files are available on www.scoperatings.com. Additionally, the new issue report FT PYMES SANTANDER 12 explains the framework and assumptions for the analysis Scope has performed.
The historical default rates of Scope Ratings can be viewed on the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s default rating, definitions of rating notations and further information on the analysis components of a rating can be found in the documents on methodologies on the rating agency’s website.

Conditions of use / exclusion of liability
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