Rating action

Scope Ratings GmbH (Scope) has reviewed the performance of the notes issued by Santander Consumer Spain Auto 2020-1, FT and has taken the following rating actions:

Class A (ES0305499008), EUR 122.4m outstanding: affirmed at AA_SF

Class B (ES0305499016), EUR 6.5m outstanding: affirmed at A-_SF

Class C (ES0305499024), EUR 5.2m outstanding: affirmed at BBB_SF

Class D (ES0305499032), EUR 4.6m outstanding: affirmed at BB+_SF

Class E (ES0305499040), EUR 2.7m outstanding: affirmed at B+_SF

The rating actions incorporate the correction of a model error in the post-processing of model results with regards to Class B, C and E notes. The previous model results excluded one of the scenarios dependent on prepayment parameters. The impact of the error was negative on Class B notes and positive on Class C and E notes. The rating actions consider the transaction’s performance, as well as the current capital structure. Scope performed a full review of the transaction considering the investor reports with information up to 20 March 2024.

Transaction overview

The transaction is an auto ABS transaction consisting of the securitisation of a EUR 520m portfolio of 49,547 fully amortising loans for vehicle acquisitions, originated by Santander Consumer Finance SA (SCF) and granted to Spanish consumers and commercial retail clients. The transaction features pro-rata amortisation for tranches A to F, subject to performance conditions on the underlying portfolio. If assets underperform or the outstanding asset balance falls below 10% of the initial balance, liabilities will amortise fully sequentially. Of the six classes of notes, Scope has assigned ratings to classes A through E, leaving class F unrated.

The transaction closed on 22 September 2020 and the final legal maturity will be on 21 March 2033. As of last payment date in March 2024, 42 months since the closing date, the rated notes’ outstanding nominal balance was EUR 141.5m (EUR 520.0m at closing).

Rating rationale

The credit enhancement on the rated has increased slowly but consistently since closing. The transaction also benefits from significant excess spread. The spread between the portfolio’s weighted average interest and the issuer’s weighted average cost of liabilities is about 2.3%.

The transaction’s observed defaults and recoveries have been in line with Scope’s initial expectations. No collateral performance triggers to switch from pro-rata to sequential amortisation have been breached. As of March 2024, the last three months’ average delinquency, cumulative default and cumulative loss ratios were 3.7%, 2.6% and 0.8%, respectively, still below their thresholds of 5%, 6.2% and 2.5%.

Risk exposure to back-loaded defaults, given the pro-rata amortisation, remains material. A backloaded default scenario is plausible due to current and expected macro-economic backdrop and a pool maturity profile which leaves weaker obligors towards the end of the transaction’s life. These negative factors are somewhat offset by the structural pro-rata switch to sequential amortisation, which protects senior noteholders.

Counterparty risk does not constrain the ratings. Issuer account bank holder SCF and interest rate cap counterparty Banco Santander hold the ratings required to allow the highest possible rating on the transaction. The strong credit profiles of SCF and Banco Santander, combined with appropriate counterparty downgrade and replacement mechanisms, mitigate the transaction’s counterparty concentration risk.

Key rating drivers

The key rating drivers remain aligned with those disclosed by Scope in the last rating action release (2022).

The transaction has exhibited good collateral performance. The pro-rata amortisation mechanism prevents a faster improvement in the credit enhancement which exposes the notes to a backloaded default scenario. This is mitigated by the solid asset performance so far and the performance triggers to switch the structure to a sequential payment waterfall.^1,2

Rating-change drivers

Positive. An early activation of the stop-pro-rata trigger followed by improving portfolio performance may reflect positively on the senior notes.

Negative. A worsening of the Spanish macro-economic backdrop may deteriorate the borrower performance thereby affecting the ratings.

Quantitative analysis and assumptions

Scope performed a cash flow analysis of the transaction over the amortisation period, incorporating important structural mechanisms. The agency used a large homogenous portfolio approximation approach to analyse the highly granular collateral pool. Scope assumed that portfolio defaults followed an inverse Gaussian distribution when calculating the expected loss of the rated tranches. The analysis also provided the expected weighted average life of each tranche. Scope considered asset and liability amortisation.

Based on the pool composition as of March 2024, Scope established a mean default rate of 3.5% and a coefficient of variation of 74.0% for the remaining pool over a weighted average life of 1.8 years. Scope maintained its closing base case recovery rate of 40%. The rating-conditional recovery rates were therefore 40.0% for B, 36.8% for BB, 33.6% for BBB, 30.4% for A, 27.2% for AA and 24.0% for AAA.

Scope analysed the transaction under high (10%) average (7%) and low (0%) prepayment assumptions.

Sensitivity analysis

Scope tested the resilience of the ratings to deviations in the main input parameters: the mean default rate and the portfolio recovery rate. This analysis has the sole purpose of illustrating the sensitivity of the ratings to input assumptions and is not indicative of expected or likely scenarios. The following shows how the results for each rated tranche change compared to the assigned ratings when the assumed mean default rate increases by 50%, or the portfolio’s expected recovery rate decreases by 50%, respectively:

Class A: sensitivity to mean default rate, three notches; sensitivity to recovery rate, one notch

Class B: sensitivity to mean default rate, four notches; sensitivity to recovery rate, three notches

Class C: sensitivity to mean default rate, three notches; sensitivity to recovery rate, two notches

Class D: sensitivity to mean default rate, two notches; sensitivity to recovery rate, one notch

Class E: sensitivity to mean default rate, zero notches; sensitivity to recovery rate, zero notches

Rating driver references
1. Investor reports
2. Transaction documentation

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 Structured Finance Expected Loss Model Version 2.0, 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 these Credit Ratings, (General Structured Finance Rating Methodology, 6 March 2024; Consumer and Auto ABS Rating Methodology, 4 March 2024; Counterparty Risk Methodology, 13 July 2023), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for these Credit Ratings is (Cash Flow Structured Finance Expected Loss Model Version 2.0), 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 Ratings: 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 these Credit Ratings 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 Ratings and it has no impact on the Credit Ratings.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and the principal grounds on which the Credit Ratings are based. Following that review, the Credit Ratings were not amended before being issued.

Regulatory disclosures
These Credit Ratings are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings are UK-endorsed.
Lead analyst: Shashank Thakur, Senior Analyst
Person responsible for approval of the Credit Ratings: Antonio Casado, Managing Director
The final Credit Ratings were first released by Scope Ratings on 25 September 2020. The Credit Ratings were last updated on 2 August 2022.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
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