Rating action

The transaction comprises the following instruments:

• Class A (ISIN ES0305306005); EUR 496.5m outstanding; affirmed at AAA_SF
   
• Class B; EUR 120.0m outstanding; not rated

Transaction overview

The transaction is a Spanish RMBS securitisation issued in December 2017. A detailed description of the transaction features and analytical assumptions, at closing, can be found in the transaction’s rating report, available at Scope’s website.

As of the reporting cut-off date (25 October 2022), the underlying portfolio of assets has an expected remaining weighted average life (assuming zero defaults and prepayments) of approximately 8.9 years, and the pool factor stands at 68.7%. Class A notes’ credit enhancement, provided by the tranching of the capital structure, has increased to 26% from 17.8% since closing.

The amortising reserve fund is at 100% of its target level, equivalent to 8.1% of the outstanding size of the senior notes.

During the latest interest payment date, gross excess spread (measured as the realized portfolio yield minus the weighted average cost of the rated notes, annualized) equalled 0%.

The issuer remains primarily exposed to the following counterparties: ABANCA Corporación Bancaria S.A. as originator and servicer, and Banco Santander S.A. as issuer account bank and paying agent.

Rating rationale

The review addressed a) the observed performance of the collateral as of the review cut-off date, b) Scope’s forward-looking performance assumptions, in the context of the expected macro-economic environment over the remaining life of the transaction, c) the transaction’s updated asset and liability structure, and d) the issuer’s exposure to key transaction parties.

Following we summarize our main analytical conclusions and assumption updates:

Observed collateral performance¹: Overall, the portfolio has performed better than expected by Scope at closing. The following key metrics, as of the reporting cut-off date, reflect the overall portfolio performance: cumulative default rate: 0.2%; 90 days-past-due dynamic delinquency rate: 0.2%; observed to date recovery rate on defaulted exposures: 9.4%; cumulative prepayment rate: 13.3%.

Expected collateral performance: Portfolio remaining lifetime default rates are approximated through an inverse Gaussian distribution. We have reduced the mean parameter of the distribution to 9.0% from 14.5%. This update reflects the positive portfolio performance to date and considers Scope´s macro-economic outlook. We have adjusted the coefficient of variation parameter distribution to 78% from 55% to account for the lower mean base. Other asset assumptions, such as recovery rates and prepayments, remain unchanged.

Notes amortisation: The updated capital structure is positive for the class A notes rating. The realised deleveraging of the capital structure reflects the sequential amortisation of the notes, in accordance with the rules of the transaction’s waterfall.

Liquidity protection: Available liquidity continues to support the ratings of the notes, in accordance with Scope’s General Structured Finance Methodology. The current size of the reserve fund provides ample liquidity protection.

Interest rate risk: The structure is unhedged against basis and interest rate reset risk arising from differences between the rates payable on the assets and the rates payable on the liabilities. Almost all of the assets are linked to the 12-month Euribor rate, while the liabilities are linked to the 3-month Euribor rate. Our analysis embeds rating-conditional interest rate stresses, which we have updated, considering current and expected market conditions. The impact is credit neutral for the class A notes.

Counterparty risk: The key transaction counterparties continue to support the ratings. No rating-change drivers related to counterparty risks have taken place since our last rating action.

Key rating drivers

The key rating drivers continue to be aligned with those disclosed on our rating action release dated 22 December 2017.

Rating-change drivers

All else equal, the following factors may constitute downside rating drivers:

• A material deviation of observed transaction performance from Scope’s forward looking performance assumptions.

Quantitative analysis and assumptions

Scope used a proprietary cash flow model to calculate the expected loss and expected weighted average life of each rated tranche, considering the transaction’s assets and liability structure. Asset cash flows are projected based on the securitized portfolio amortization schedule and on committee-agreed upon performance assumptions, which reflect the characteristics and quality of the portfolio. The model replicates the transaction’s key structural features, including the capital structure, the order of priority of the issuer’s liabilities, and enhancement features such as excess spread and cash reserves.

The key analytical assumptions include the following: an inverse-gaussian distribution of portfolio remaining lifetime defaults, with a mean of 9% and a coefficient of variation of 78%; a rating-conditional recovery rate of ranging from 70% under a B scenario to 51.2% under a AAA scenario; high and low constant prepayment rate scenarios of 5% and 0%, respectively; stressed senior fees of 0.5% and a fixed weighted average portfolio yield compression of 0.15%. We have also tested the structures resilience to stressed interest base rate rising up to 9% under a AAA scenario.

Sensitivity analysis

Scope tested the resilience of the credit rating against deviations in the main input parameters: the portfolio mean default rate and the portfolio recovery rate. This analysis has the sole purpose of illustrating the sensitivity of the rating to input assumptions and is not indicative of expected or likely scenarios.

• A 50% increase in the mean default rate assumption has 0 notches quantitative impact on the class A notes.
   
• A 50% decrease in Scope’s rating-conditional recovery rate assumptions has a -1 notch quantitative impact on the class A notes.

Rating driver references
1. Investor reporting 

Stress testing
Stress testing was considered in the quantitative analysis by considering scenarios that stress factors, like defaults and Credit-Rating-adjusted recoveries, contributing to sensitivity of Credit Ratings and consider the likelihood of severe collateral losses or impaired cash flows. The impact on the rated instruments is weighted by the assumptions of the likelihood of the events in such scenarios occurring.

Cash flow analysis
Scope Ratings performed a cash flow analysis of the transaction with the use of Scope Ratings’ Cash Flow SF EL Model Version 1.1, incorporating relevant asset assumptions, and taking into account the transaction’s main structural features, such as the instruments’ priority of payments, the instruments’ size and coupons. The outcome of the analysis is an expected loss rate and an expected weighted average life for the instruments based on the generated cash flows.

Methodology
The methodologies used for this Credit Rating, (General Structured Finance Rating Methodology, 12 December 2021; Counterparty Risk Methodology, 14 July 2022), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for this Credit Rating is (Cash Flow SF EL Model Version 1.1), available in Scope Ratings’ list of models, published under https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to 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 Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Rating: public domain, the Rated Entity, the Rated Entities’ Related Third Parties, third parties and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting the Credit Rating originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Scope Ratings received a third-party asset due diligence assessment/asset audit at closing. The external due diligence assessment/asset audit was considered when preparing the Credit Rating and it had no impact on the Credit Rating.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Rating and the principal grounds on which the Credit Rating is based. Following that review, the Credit Rating was not amended before being issued.

Regulatory disclosures
The Credit Rating is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Rating is UK-endorsed.
Lead analyst: Adam Plajner, Associate Director
Person responsible for approval of the Credit Rating: Antonio Casado, Executive Director
The final Credit Rating was first released by Scope Ratings on 22 December 2017. 

Potential conflicts
See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings.

Conditions of use / exclusion of liability
© 2023 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.