RPT-Fitch Upgrades F.T.A. Santander Empresas 2 Tranche C; Affirms Others

Tue May 6, 2014 8:58am EDT

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May 6 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has upgraded the F.T.A. Santander Empresas 2's tranche C notes and affirmed the rest, as follows:

EUR78.7m Class B (ISIN ES0338058029): affirmed at 'AA+sf''; Outlook Stable

EUR62.3m Class C (ISIN ES0338058037): upgraded to 'AAsf' from 'Asf'; Outlook Stable

EUR59.5m Class D (ISIN ES0338058045): affirmed at 'BBsf'; Outlook Stable

EUR29m Class E (ISIN ES0338058052): affirmed at 'Bsf'; Outlook Negative

EUR53.7m Class F (ISIN ES0338058060): affirmed at 'Csf'; RE (Recovery Estimate) 0%

F.T.A. Santander Empresas 2 is a granular cash flow securitisation of a static portfolio of secured and unsecured loans granted to Spanish small- and medium-sized enterprises by Banco Santander S.A. (BBB+/Negative/F2).

KEY RATING DRIVERS

The upgrade of the class C notes is a result of the transaction's deleveraging following the payment in full of the senior A-1 and A-2 notes and continued amortisation of the underlying portfolio, which now stands at 7.9% of its original balance. Due to the deleveraging, credit enhancement on the class C note rose to 52.2% from 42.2% over the last 12 months, allowing the notes to now withstand the agency's 'AAsf' rating stress scenario.

The rating on the class B notes is driven by the Country Ceiling of the Kingdom of Spain, which was upgraded to AA+ from AA on 28 April 2014.

Tha affirmation of class D, E and F reflects the transaction's stable underlying performance. Over the last 12 months 90+ day delinquent loans fell to EUR2.6m from EUR10.1m while cumulative write-offs rose to EUR14.4m from EUR8.3m, an indication that the majority of delinquent loans present in the portfolio 12 months ago have migrated into the default bucket. Cumulative failed loans are currently EUR49m, 1.69% of the initial balance.

The transaction is exposed to high obligor concentration risk and may therefore be subject to increased performance volatility due to risks specific to the largest obligors. The largest obligor accounts for 8.7% of the portfolio notional and operates in the utilities industry. This exposure is not secured by real estate collateral and is due to mature in June 2016. The 10 largest obligors together represent 41.2% of the portfolio.

The Negative Outlook on the class F notes reflects the vulnerability of the notes to the transaction's obligor concentration.

RATING SENSITIVITIES

Applying a 1.25x default rate multiplier to all assets in the portfolio would result in a downgrade of up to three notches on the notes. Applying a 0.75x recovery rate multiplier to all assets in the portfolio would result in a downgrade of up to two notches on the notes.

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