Rating action

Scope Ratings GmbH (Scope) has performed the following rating actions:

• Class A (ISIN ES0305608004), EUR 318.2m outstanding: affirmed at AAA_SF
   
• Class B (ISIN ES0305608012), EUR 24.4m outstanding: upgraded to A+_SF from BBB+_SF under review for development outcome
   
• Class C (ISIN ES0305608020), EUR 39.0m outstanding: not rated

Transaction overview

The transaction is a Spanish consumer RMBS securitisation issued in October 2021. A detailed description of the transaction’s features and analytical assumptions at closing can be found in the rating report available at Scope’s website.

As of the reporting cut-off date on 17 June 2024, the underlying portfolio of assets has an expected remaining weighted average life (assuming zero defaults and prepayments) of around 12.8 years and the pool factor stands at 75%. Credit enhancement with regards to the rated class A and B notes has increased to respectively 18.6% and 12.2% from 15.0% and 10.0% at closing.

The amortising reserve fund is at 100% of its target level, equivalent to 2% of the outstanding portfolio balance.

The issuer remains primarily exposed to the following counterparties: Unión de Créditos Inmobiliarios, S.A., Establecimiento Financiero de Crédito as originator and servicer, Banco Santander, S.A. as issuer account bank and paying agent and BNP Paribas as interest rate hedge counterparty.

Rating rationale

The review addressed i) the introduction of the recently published RMBS rating methodology; ii) the observed performance of the collateral as of the review cut-off date; iii) Scope’s forward-looking performance assumptions in the context of the expected macro-economic environment over the transaction’s remaining life; iv) the transaction’s updated asset and liability structure; and v) the issuer’s exposure to key transaction parties.

The upgrade for the mezzanine notes is mainly attributable to the application of the new methodology, impacting Scope’s assumptions on senior costs and the portfolio’s remaining lifetime distressed default rate. Better than expected performance also contributed to the positive rating outcome.

Beyond the key rating drivers addressed below, the main analytical considerations addressed during this periodic review are:

Observed collateral performance¹. Overall, the portfolio has performed in line with Scope’s expectations at closing. The cumulative default rate is 0.2% and the 90 days-past-due dynamic delinquency rate is 0.34%. Realised cumulative defaults since closing have been fully provisioned for with available excess spread.

Notes amortisation¹. Class A and B notes subordination have increased by 3.6% and 2.2%, respectively.

Key rating drivers

The key rating drivers remain aligned with those disclosed on our rating action dated 21 September 2022 and on initial rating. One key driver (Simple structure) is considered an ESG factor.

One or more key drivers of the credit rating action are considered an ESG factor.

Key rating-change drivers

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

• Quicker than expected deleveraging of the capital structure and better than expected performance.

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

• A material worsening of transaction’s performance.

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 securitised portfolio amortisation schedule and on committee-determined 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 5.4% and a distressed default rate of 27.8%; stochastic recovery rates distribution framework with a mean of 75% and a distressed recovery rate of 45% (according to the RMBS Rating Methodology); high, mid and low constant prepayment rate scenarios of 15.0%, 5.0% and 1.0%, respectively; stressed senior fees of 0.3%, and a portfolio yield compression and basis risk stress of 0.2% and 0.3%, respectively.

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 a zero-notches quantitative impact on the class A notes and a two-notches quantitative impact on the class B notes.
   
• A 10% decrease in Scope’s stochastic recovery rate assumptions has a zero-notches quantitative impact on the class A notes and a two-notches quantitative impact on the class B notes.

Rating driver references
1. Investor reports

Stress testing
Stress testing was considered in the quantitative analysis by considering scenarios that stress factors, like defaults and 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 Rating’s Cash Flow Model Version 2.0, incorporating default and recovery rate assumptions over the portfolio’s amortisation period, taking into account the transaction’s main structural features, such as the notes’ priorities of payment, the notes’ size and coupons. The outcome of the analysis is an expected loss and an expected weighted average life for the notes.

Methodology
The methodologies used for these Credit Ratings, (General Structured Finance Rating Methodology, 6 March 2024; Counterparty Risk Methodology, 10 July 2024; Residential Mortgage-Backed Securities Rating Methodology, 17 July 2024), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for these Credit Ratings is (Cash Flow 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 has 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: Stefano Bracchi, Specialist
Person responsible for approval of the Credit Ratings: Paula Lichtensztein, Senior Representative
The final Class A Credit Ratings were first released by Scope Ratings on 21 October 2021. The Credit Ratings were last updated on 21 September 2022.
The final Class B Credit Ratings were first released by Scope Ratings on 21 October 2021. The Credit Ratings were last updated on 8 August 2024.

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
© 2024 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis 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.