Fitch Ratings has assigned final ratings and Rating Outlooks to Santander Drive Auto Receivables Trust (SDART) 2021-3.
The risk of potential increases in delinquencies and coronavirus pandemic-related losses has lessened due to extensive government stimulus efforts, payment relief programs, the speed of vaccine rollouts, a robust wholesale market and a faster pace of economic recovery. As such, Fitch has retired its coronavirus baseline and downside scenarios. However, Fitch's base case cumulative net loss (CNL) proxy is derived by considering 2006-2009 Santander Consumer USA Inc. (SC) recessionary static-managed portfolio performance resulting from an elevated unemployment environment, along with more recent SC-managed vintage and ABS performance.
RATING ACTIONSENTITY/DEBT RATING PRIOR
Santander Drive Auto Receivables Trust 2021-3
ST F1+sf New Rating F1+(EXP)sf
LT AAAsf New Rating AAA(EXP)sf
LT AAAsf New Rating AAA(EXP)sf
LT AAsf New Rating AA(EXP)sf
LT Asf New Rating A(EXP)sf
LT BBBsf New Rating BBB(EXP)sf
LT NRsf New Rating NR(EXP)sf
VIEW ADDITIONAL RATING DETAILS
KEY RATING DRIVERS
Collateral Performance - Stable Credit Quality: 2021-3 is backed by collateral that is generally consistent with prior recent pools, with a weighted average (WA) FICO score of 609, and an internal WA loan funded score (LFS) of 533, consistent with 2021-2 at 610 and 535. WA seasoning is seven months, and the pool is geographically diverse. New vehicles total 30.6% of the pool, down from 32.3% in 2021-2. The transaction's percentage of extended-term loans (61+ months) remains elevated at 92.9% and greater than 72-month term loans total 14.1%, slightly up from 13.5% in 2021-2.
Payment Structure - Sufficient Credit Enhancement (CE): Initial hard CE totals 50.75%, 38.75%, 26.25%, 13.25% and 7.50% for classes A, B, C, D and E, respectively, down from 2021-2. Excess spread is estimated to be 10.87% per annum. Loss coverage for each class of notes is sufficient to cover respective multiples of Fitch's base case CNL proxy of 17.00%, down from 17.25% in 2021-2.
Forward-Looking Approach to Derive Base Case Proxy - Low Losses and Delinquencies: Fitch considered economic conditions and future expectations by assessing key macroeconomic and wholesale market conditions when deriving the series loss proxy. Consistent with recent transactions, an additional stress was applied to 75-month loans in deriving the loss proxy as performance for these contracts has generally been volatile.
Although within range of 2010-2012 performance, SC's 2013-2017 losses tracked higher but ABS performance remains within Fitch's initial expectations, consistently exhibiting stronger performance than that of the managed portfolio. Therefore, Fitch's initial base case CNL proxy was derived utilizing 2006-2009 and 2014-2017 vintage ranges, including recessionary static managed portfolio and more recent ABS performance. Fitch arrived at a forward-looking credit loss expectation of 17.00%.
Seller/Servicer Operational Review - Consistent Origination/Underwriting/Servicing: SC demonstrates adequate abilities as the originator, underwriter and servicer, as evidenced by historical portfolio and securitization performance. Fitch rates SC's ultimate parent, Banco Santander, S.A., at 'A-'/'F2'/Stable. Fitch deems SC as capable to service this transaction.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Stable-to-improved asset performance driven by stable delinquencies and defaults would lead to increasing CE levels and consideration for potential upgrades. If CNL is 20% less than the projected proxy, the expected ratings for the subordinate notes could be upgraded by up to one category.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Unanticipated increases in the frequency of defaults could produce CNL levels higher than the base case and would likely result in declines of CE and remaining net loss coverage levels available to the notes. Additionally, unanticipated declines in recoveries could also result in lower net loss coverage, which may make certain note ratings susceptible to potential negative rating actions depending on the extent of the decline in coverage.
Therefore, Fitch conducts sensitivity analyses by stressing both a transaction's initial base case CNL and recovery rate assumptions, as well as examining the rating implications on all classes of issued notes. The CNL sensitivity stresses the CNL proxy to the level necessary to reduce each rating by one full category, to non-investment grade (BBsf) and to 'CCCsf', based on the break-even loss coverage provided by the CE structure.
Additionally, Fitch conducts 1.5x and 2.0x increases to the CNL proxy, representing both moderate and severe stresses. Fitch also evaluates the impact of stressed recovery rates on an auto loan ABS structure and rating impact with a 50% haircut. These analyses are intended to provide an indication of the rating sensitivity of notes to unexpected deterioration of a trust's performance.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as prepared by Deloitte & Touche LLP. The third-party due diligence described in Form 15E focused on 150 loans from the statistical data file. Fitch considered this information in its analysis and it did not have an effect on Fitch's analysis or conclusions.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
Additional information is available on www.fitchratings.com
Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 29 Jan 2020)
U.S. Auto Loan ABS Rating Criteria (pub. 19 Mar 2020) (including rating assumption sensitivity)
Global Structured Finance Rating Criteria (pub. 24 Mar 2021) (including rating assumption sensitivity)
Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).
ABS Loss Forecaster Model, v1.1.1 (1)
Auto Timeshare Model, v1.1.0 (1)
Read More On This Topic
Santander Drive Auto Receivables Trust 2021-3 (US ABS)
Santander Drive Auto Receivables Trust 2021-3 - Appendix
Dodd-Frank Rating Information Disclosure Form
ABS Due Diligence Form 15E 1
Santander Drive Auto Receivables Trust 2021-3 EU Endorsed, UK Endorsed
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