OREANDA-NEWS. Fitch Ratings has affirmed Fondo de Titulizacion de Activos Santander 2's (FTA Santander 2) asset-backed commercial paper's (ABCP) Short-term rating at 'F2sf'. The affirmation follows the annual review of the programme.

The programme is periodically renewed by the fund's administrator, Santander de Titulizacion, each year, when structural items may be modified and registered with the Spanish securities regulator, Comision del Mercado de Valores (CNMV). No structural changes have been implemented in the last renewal, dated 14 January 2016.

The issuer is a single-seller partially-supported ABCP programme structured to purchase short-term receivables originated in Spain by Banco Santander (A-/Stable/F2). The receivables correspond to commercial credit discounts and credit advances provided by Santander to Spanish enterprises. The conduit finances revolving purchases via the issuance of commercial paper (CP).

FTA Santander 2's CP rating is capped at Banco Santander's Short-term Issuer Default Rating (IDR) of 'F2'. The program is supported by a liquidity facility, a dynamic loss reserve funded through a letter of credit, and a guaranteed investment contract (GIC) account all provided by Banco Santander.

The loss reserve is designed to mitigate credit risk. The size of the reserve is linked to performance and debtor concentration, among other factors aligned with Fitch's trade receivables criteria. However, because monthly recoveries may reduce the required amount of the loss reserve, its size is subject to potential volatility. The reserve is also capped at EUR420m. Fitch has analysed the formula of the dynamic loss reserve and has concluded that it is commensurate with at least an 'F2sf' stress. As of end December 2015, the loss reserve was fully funded at its required amount of EUR125.3m.

The liquidity facility fully mitigates the risk of maturity mismatches between the assets and liabilities. It may be drawn up to an amount equivalent to the outstanding 100% of the outstanding CP, and its reimbursement is subordinated to CP payments.

On average, assets have a shorter term to maturity than the issued CP. Both asset and CP terms may have a maximum term of 364 days, but assets are also constrained by a maximum weighted average term of 55 days. Collections from assets are transferred daily to the GIC account and held there until CP maturity. The GIC account mitigates carry cost risk by guaranteeing a rate equal to the average rate paid on all the liabilities of the issuer in the preceding month.

The structure has stop issuance triggers in place, which prevent new CP issuance in case of asset performance deterioration, among other events. For instance, the structure prevents new CP issuance when the ratio of three-month rolling average of delinquent assets plus period net defaults over the average monthly new assets originated during the proceeding fourth and fifth months, represents more than 0.7% of the outstanding balance of all assets. Issuance triggers have not been breached since October 2014, indicating an improvement of the underlying performance.

The rating is capped at Banco Santander's in its role as liquidity facility, credit support and GIC account provider. A downgrade of Banco Santander's Short-term IDR would result in a parallel change in the CP's rating. An upgrade of Banco Santander's Short-term IDR could result in an upgrade of the CP's rating, provided the then current loss reserve would provide sufficient credit enhancement to support the higher rating.

If asset performance deteriorates significantly and results in losses beyond the reserve fund cap of EUR420m, the CP could suffer a loss.

No third party due diligence was provided or reviewed in relation to this rating action.

Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this analysis.

Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated no adverse findings material to the rating analysis.

Fitch did not undertake a review of the information provided about the underlying asset pool ahead of the transaction's initial closing. The subsequent performance of the transaction over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.

Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

The information below was used in the analysis.
- Transaction reporting provided by Santander de Titulizacion as at 31 December 2015.
- Updated offering circular deposited with the CNMV, dated 14 January 2016.
- Annual data audit report on the portfolio conducted by Deloitte, dated 27 April 2015
- Issuer's audited 2014 annual accounts.
- Periodical originator reviews conducted by Fitch.