Santander Retail Auto Lease Trust 2017-A

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1 Presale: Santander Retail Auto Lease Trust 2017-A This presale report is based on information as of Nov. 8, The ratings shown are preliminary. This report does not constitute a recommendation to buy, hold, or sell securities. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings. Preliminary Ratings Class Preliminary rating(i) Type Interest rate(ii) Preliminary amount (mil. $)(iii) Expected legal final maturity date A-1 A-1+ (sf) Senior Fixed Nov. 20, 2018 A-2-a/A-2-b(iv) AAA (sf) Senior Fixed/floating March 20, 2020 A-3 AAA (sf) Senior Fixed Jan. 20, 2021 A-4 AAA (sf) Senior Fixed Jan. 20, 2022 B AA (sf) Subordinate Fixed Jan. 20, 2022 C A (sf) Subordinate Fixed Nov. 21, 2022 (i)the rating on each class of securities is preliminary and subject to change at any time. (ii)the interest rates will be determined on the pricing date. (iii)the actual size of these tranches will be determined on the pricing date. (iv)the class A-2 notes will be issued as a combination of fixed-rate notes (class A-2-a) and floating-rate notes (class A-2-b). The principal amount allocation between the two tranches will be determined on or before the pricing date. The trust expects that the principal balance of the class A-2-b notes will not exceed $127.0 million. Profile Expected closing date Nov. 22, Primary Credit Analyst: Steve D Martinez, New York (1) ; steve.martinez@spglobal.com Secondary Contact: Jennie P Lam, New York (1) ; jennie.lam@spglobal.com See complete contact list on last page(s) NOVEMBER 8,

2 Profile (cont.) Collateral Origination trust Sponsor and administrator Originator and servicer Depositor Issuer (or issuing trust) Indenture trustee Owner trustee Lead underwriter Prime auto lease receivables. CCAP Auto Lease Ltd. Santander Consumer USA Inc. Santander Consumer USA Inc. Chrysler Capital Division. Santander Retail Auto Lease Funding LLC. Santander Retail Auto Lease Trust 2017-A. Citibank N.A. Wilmington Trust N.A. JP Morgan Securities LLC. Credit Enhancement Summary(i) SRT 2017-A Class A hard credit enhancement Initial Target Floor Subordination (%) Overcollateralization (%)(ii) Reserve account (%) Total (%) Class B hard credit enhancement Subordination (%) Overcollateralization (%)(ii) Reserve account (%) Total (%) Class C hard credit enhancement Subordination (%) Overcollateralization (%)(ii) Reserve account (%) Total (%) Estimated excess spread per year (%) 3.73 Discount rate (%) 7.25 Initial aggregate securitization value ($) 872,112,801 Total securities issued ($) 750,000,000 (i)all percentages are based on the initial aggregate securitization value. (ii)the target overcollateralization percentage will step-down to 15.0% after the class A-2 notes are paid in full. SRT Santander Retail Auto Lease Trust. Rationale The preliminary ratings assigned to Santander Retail Auto Lease Trust 2017-A's (SRT 2017-A's) $750 million asset-backed notes series 2017-A reflect our view of: The availability of approximately 30.65%, 26.81%, and 21.63% credit enhancement for the class A, B, and C notes, respectively, in the form of 9.45% and 5.35% subordination, respectively, to the class A and B notes; 14.00% NOVEMBER 8,

3 overcollateralization, which is expected to build to a target of 16.00% and steps down to 15.00% after the class A-2 notes are paid in full; a 0.25% nonamortizing reserve account; and excess spread (all percentages are expressed as a percentage of the pool's initial aggregate securitization value). The credit quality of the underlying collateral, which consists of prime auto lease receivables that have a weighted average FICO score of 747. The diversified mix of vehicle models and vehicle types in the pool. The expected timing of the residuals' maturities. The historical residual retention values of vehicles in the pool. The Automotive Lease Guide's (ALG's) forecast of each vehicle's residual value at lease inception and of current residuals. The timely interest and full principal payments by the notes' legal final maturity dates made under cash flow scenarios that were stressed for credit, residual, and incentive program losses that are consistent with the assigned preliminary ratings. Our expectation that under a moderate ('BBB') stress scenario, all else being equal, during the first year our ratings on the class A and B notes will remain within one rating category of the assigned preliminary ratings, and our rating on the class C notes will remain within two rating categories of the assigned preliminary rating. This is within the outer bounds of our credit stability criteria (see "Methodology: Credit Stability Criteria," published May 3, 2010). Our view of Santander Consumer USA Inc.'s (SC's) long history in the auto finance business. Although it started primarily as a subprime auto finance company, it has been underwriting and servicing a wide spectrum of Fiat Chrysler (FCA) auto loan receivables since May 2010 and auto lease receivables since April 2013 through its strategic alliance with FCA. In addition, the company has been active in prime-quality auto finance since Banco Santander's acquisition of Sovereign Bank in January Our view of the transaction's payment, credit, and legal structures. Our expected base-case cumulative net credit loss for the SRT 2017-A pool is 1.10%-1.20% of the securitization value, which reflects our analysis of SRT 2017-A's collateral pool composition, peer comparisons, and a forward-looking view of the economy. Our 'AAA' stressed scenario for credit losses ranges from 5.50%-6.00% of the securitization value. Please see the S&P Global Ratings' Expected Loss section for our credit loss ranges for our 'AA' and 'A' stress scenarios. Our 'AAA' residual stress for the SRT 2017-A pool is approximately 36.61% of the pool's aggregate undiscounted base residual value. After applying this stress to the residual value portion of the pool (71.65%) and the portion of nondefaulting leases (88.50%) under this scenario, our 'AAA' residual stress constituted approximately 23.22% of the securitization value. Transaction Overview SRT 2017-A represents SC's inaugural transaction of auto lease receivables originated by its Chrysler Capital Division. SRT 2017-A is the ninth term asset-backed transaction issued under SC's Chrysler Capital program. SC has issued eight Chrysler Capital auto loan transactions to date since The receivables securitized in SRT 2017-A will consist of the remaining monthly lease payments and base residual values of a pool of auto lease contracts originated by Chrysler Capital. The underlying motor vehicles will all consist of new FCA motor vehicles. NOVEMBER 8,

4 SRT 2017-A's transaction structure incorporates an initial reserve amount of 0.25% of the initial securitization value, an overcollateralization amount of 14.00% that builds to a target of 16.00% of the initial securitization value, subordination of 9.45% and 5.35% for the class A and B notes, respectively, and estimated excess spread of approximately 3.73% per year. The target overcollateralization will include an overcollateralization step-down feature whereby the target overcollateralization level will decline to 15.00% from 16.00% after the payment date on which the class A-2 notes are paid in full. The transaction uses a sequential payment method in which no hard credit support is released from the transaction until all of the rated notes are paid in full. Excess spread, however, can be released if the overcollateralization is at its target level. The issuing entity will issue four class A notes and two classes of subordinate notes, classes B and C. The class A-2 notes may be issued as either a fixed-rate note tranche (i.e. class A-2-a) or a combination of fixed- and floating-rate (classes A-2-a and A-2-b, respectively). The class A-2-a notes will rank pari passu with the class A-2-b notes. The class A-2-b notes will not benefit from an interest rate hedge. In our cash flow analysis, we have applied appropriate stresses for a possible floating-rate note issuance. Legal Structure The receivables backing the SRT 2017-A notes will comprise monthly lease payments and base residual values of a pool of lease contracts originated by FCA US LLC dealers and assigned to the origination trust. All of the leased vehicles included in the transaction will be titled in the origination trust's name, CCAP Auto Lease Ltd., a Delaware statutory trust created in The origination trust will issue a special unit of beneficial interest (SUBI) certificate, which represents a beneficial interest in the origination trust relating solely to the specified pool of closed-end FCA vehicle leases and the related Chrysler leased vehicles. The issuing entity will own the rights, title, and interest to the SUBI certificate and pledge the SUBI certificate to the indenture trustee for the noteholders' benefit. On the closing date, SC will sell the transaction's SUBI certificate to the depositor, Santander Retail Auto Lease Funding LLC, as a true sale. The depositor will then transfer and assign the SUBI certificate to the issuing entity, SRT 2017-A, a newly formed Delaware statutory trust. The issuing entity will then pledge the SUBI certificate to the indenture trustee as security for the series 2017-A notes, and then issue the rated notes (See chart 1 for the transaction structure). NOVEMBER 8,

5 In rating this transaction, S&P Global Ratings will review the legal matters that it believes are relevant to its analysis, as outlined in its criteria. Payment Structure Interest and principal are scheduled to be paid to the rated notes on the 20th day of each month or, if that is not a business day, the next business day, beginning Dec. 20, On each payment date before any note acceleration following an event of default, the indenture trustee will make distributions from available funds according to the payment priority shown in table 1. Table 1 Payment Waterfall Priority Payment 1 To the indenture, SUBI, and owner trustees, any accrued and unpaid fees, reasonable expenses, and indemnification amounts not previously paid by the administrator, provided that such amounts are limited to $300,000 per year, in aggregate. NOVEMBER 8,

6 Table 1 Payment Waterfall (cont.) Priority Payment 2 The servicing fee (1.00%) pro rata, to the servicer and the administration fee to the administrator. 3 Note interest to the class A noteholders (pro rata). 4 The first allocation of principal to the noteholders, paid sequentially (the excess, if any, of the class A note balance over the aggregate securitization value). 5 Note interest to the class B noteholders. 6 The second allocation of principal to the noteholders, paid sequentially (the excess, if any, of the combined class A and B note balances over the aggregate securitization value minus the first principal allocation). 7 Note interest to the class C noteholders. 8 The third allocation of principal to the noteholders, paid sequentially (the excess, if any, of the combined class A, B, and C note balances over the aggregate securitization value minus the first and second principal allocations). 11 Fund the reserve account until it is equal to the targeted reserve account balance. 12 The regular allocation of principal to the noteholders, paid sequentially, if any (in this step, the notes are paid down to build to the overcollateralization target). 13 To the certificateholders, any funds remaining. SUBI--Special unit of beneficial interest. Managed Portfolio Performance For the nine months ended Sept. 30, 2017, SC's total serviced lease portfolio consisted (on average) of 432,817 contracts totaling $ billion (see table 4). Annualized net losses as a percentage of the average portfolio outstanding were 0.38%, up from 0.29% the prior year. Total delinquencies as a percentage of the number of contracts outstanding as of Sept. 30, 2017, were 1.42%, up from 1.17% the prior year. Vehicle return rates declined to 89% after being above 100% given the high level of early and scheduled terminations over the lease contracts scheduled to terminate. SC's total serviced lease portfolio as of Sept. 30, 2017, reported a residual gain on returned vehicles that equaled 6.5% of the ALG-forecast base residual value. Table 4 Managed Portfolio Nine months ended Sept. 30 Year ended Dec Avg. number of lease contracts outstanding 432, , , , ,938 Avg. lease contracts outstanding (mil. $) $11,507 $11,371 $11,439 $9,403 $5,100 Delinquent lease agreements (% of lease agreements outstanding) days days days Total 30+ days Net Losses (% of avg. $ of lease contracts outstanding)(i) Return rate based on terminated units (excludes repossessions and charge-offs, but includes all other terminations)(%) N.A. NOVEMBER 8,

7 Table 4 Managed Portfolio (cont.) Total loss (gain) on units returned to the servicer and sold during the period as a % of ALG residual values of units returned to the servicer and sold during the period Nine months ended Sept. 30 Year ended Dec (6.5) (3.1) (3.4) (3.0) (6.3) (i)net losses are annualized for the nine months ended Sept. 30, 2017, and N.A. -Not available. Pool Analysis The SRT 2017-A securitized pool consists of 34,017 prime auto lease receivables with a weighted average FICO score of 747 and weighted average seasoning of eight months (see table 5). Approximately 64% of the pool consists of leases with an original term less than or equal to 36 months. The SRT 2017-A lease contracts are backed by a diverse pool of leased vehicles; the top five vehicle models represent approximately 62% of the initial securitization value. Table 5 Original Pool Characteristics SRT 2017-A No. of leases 34,017 Initial total securitization value ($) 872,112,801 Avg. securitization value ($) $25,638 New vehicles (%) 100 Top five vehicles by model (%)(i) Jeep Grand Cherokee Dodge Ram Dodge Challenger 7.77 Dodge Durango 7.08 Dodge Journey 6.59 Weighted avg. original term (mos.) 36 Weighted avg. remaining term (mos.) 28 Weighted avg. seasoning (mos.) 8 Original term (mos.) <= Weighted avg. FICO score 747 Aggregate base residual value (undiscounted)($) $624,888,795 Avg. base residual value ($) 18,370 Base residual as a % of the aggregate securitization value 71.7 Base residual as a % of the MSRP NOVEMBER 8,

8 Table 5 Original Pool Characteristics (cont.) SRT 2017-A Top five state concentrations (%) MI=21.3 NY=15.6 CA=10.7 OH=8.2 NJ=8.1 (i)as a percentage of the initial aggregate base residual value. SRT--Santander Retail Auto Lease Trust. MSRP--Manufacturer's suggested retail price. Residual value The series 2017-A pool's aggregate securitization value is $872,112,801. The leases' securitization value is the sum of the present value of each lease's remaining monthly lease payment and the related leased vehicle's base residual value (both discounted at the higher of 7.25% or the contract annual percentage rate). In the transaction, each leased vehicle's base residual value will equal the lowest of: The stated residual value set by SC's Chrysler Capital Division when the related lease was originated; The residual value estimate established by ALG at the lease contract's origination; The residual value estimate established by ALG at the lease contract's origination and excluding certain non-value adding options; and ALG's current residual value estimate, "mark-to-market," assuming average vehicle condition, as of October The stated residual value is the residual value that is assigned to the vehicle at the lease's origination (as stated in the lease contract), which, in turn, determines the monthly payments for the individual lease. The stated residual value is typically set higher than ALG's residual value to reduce the monthly lease payments the lessee owes under the lease contract. The base residual value provides a more conservative estimate of the vehicle's future value, which helps mitigate the noteholders' exposure to the losses associated with stated residual values set higher than the expected residual values (a process called lease subvention). The SRT 2017-A pool's undiscounted base residual value is $624,888,795, or 72% of the pool's aggregate securitization value. Residual timing The leases in the SRT 2017-A pool are scheduled to mature as shown in table 6. Table 6 SRT 2017-A Lease Maturity Profile By Year(i) Year (%) NOVEMBER 8,

9 Table 6 SRT 2017-A Lease Maturity Profile By Year(i) (cont.) Year (%) (i)percentage of the aggregate undiscounted base residual value. SRT-Santander Retail Auto Lease Trust Initial lease maturities of the SRT 2017-A pool begin in December 2017 (see chart 2). Thereafter, there will be leases maturing each month. There are nine months where the expected base residual maturity level exceeds our 5.0% benchmark concentration limit. The highest monthly maturity is 6.4%, which is expected in February All other months have base residual maturity levels of less than 5.0%. Approximately 92% of the series 2017-A lease base residuals are expected to mature in 2019 and Chart 2 S&P Global Ratings' Expected Loss The transaction has three principal risk components: credit, residual, and waived payment risk. NOVEMBER 8,

10 Credit risk SC is an active issuer and originator in the retail auto loan and securitization markets. The Chrysler Capital Division of SC began originating auto lease contracts in May To derive the base-case credit loss for the series 2017-A transaction, we examined static pool data on Chrysler Capital's lease portfolio originations broken out by FICO band, lease term, and on an aggregate basis. We used the loss curves from the paid-off 2014 vintages to project losses for the outstanding SC originated collateral. We then applied the pool composition weights to the projected losses to determine a weighted average loss projection for SC-originated collateral. We focused more on the 2016 vintage monthly projections because most of the series 2017-A pool originated in 2016 and This vintage year represented the highest level of losses compared to prior yearly vintages. We also looked at peer securitization pools like GM Financial Auto Lease Trust (GMALT ), Ford Credit Auto Lease Trust 2017-A, and Hyundai Auto Lease Securitization Trust 2017-B (see table 7). Table 7 Peer Comparison(i) Issue name SRT 2017-A GMALT FCALT 2017-B HALST 2017-B No. of leases 34,107 53,085 52,766 56,419 Initial aggregate securitization value ($) 872,112,801 1,362,471,925 1,248,455,516 1,117,582,350 Avg. securitization value ($) 25,638 25,666 23,660 19,809 Weighted avg. FICO New vehicles (%) Weighted avg. original term (mos.) Weighted avg. remaining term (mos.) Weighted avg. seasoning (mos.) Original term distribution (mos.) <= Top three state concentrations (%) MI=18.5 MI=21.1 FL=15.6 NY=15.6 NY=13.6 NY=13.8 NY=13.9 CA=10.7 CA=7.8 CA=11.3 CA=13.7 Base residual value ($) 624,888, ,369, ,550, ,124,106 Avg. base residual value ($) 18,370 17,903 17,692 13,207 Base residual as a % of the aggregate securitization value Expected cumulative net credit loss (%) (i)all percentages are of the initial aggregate securitization value. SRT--Santander Retail Auto Lease Trust. GMALT--GM Financial Auto Lease Trust. FCALT--Ford Credit Auto Lease Trust. HALST--Hyundai Auto Lease Securitization Trust. In our view, the SRT 2017-A pool is most comparable to GMALT 2017-B. The SRT 2017-A pool's weighted average NOVEMBER 8,

11 FICO of 747 may be slightly lower than GMALT 2017-B pool's weighted average FICO of 758, but SRT 2017-A's original term distribution compares more favorably to the GMALT 2017-B pool's term distribution with more shorter-term loans. Historical data has shown that shorter-term contracts generally experience lower credit losses than longer-term contracts. Based on our analysis of Chrysler Capital's vintage performance data on its lease portfolio and origination trends, SRT 2017-A pool's credit quality and composition, our consideration of comparable pools from other prime auto lease issuers, and our view regarding current and future macroeconomic and industry-specific conditions, we expect the SRT 2017-A pool to experience cumulative net credit losses in the range of 1.10%-1.20%. Residual risk The residual risk in this transaction is partially mitigated because the securitized residual value is equal to the lowest of the lease contract residual value, the ALG residual value at lease origination, the ALG residual value at lease origination and excluding certain non-value adding options, and ALG's mark-to-market valuation. Securitizing the lowest of these values mitigates the risk associated with contract residual values that are set higher than the expected residual values to keep the monthly lease payments affordable to the lessee. Moreover, we did not give credit to ALG's mark-to-market valuation of the residual values in the lease pool, which indicated that the current base residual forecasts are approximately 1% higher than the original estimates. The transaction will benefit from these gains at lease maturity if ALG's current forecast holds true. In our analysis of the series 2017-A pool's residual risk, we considered the following factors: The diversity of the pool's vehicle makes and models; The stability of historical used vehicle values on the top vehicle makes and models; The top 10 vehicle models, which make up approximately 87% of the series 2017-A pool's total base residual; The consistency of ALG's historical forecasts in relation to the historical actual used vehicle values; The basis for the differences between the actual used vehicle values and ALG's forecasts; The basis for ALG's current forecast; The lease maturity profile of the series 2017-A pool; Brand perception; The consistency of the manufacturer's suggested retail price valuation; and The economy. Base haircut According to our auto lease criteria, we first applied initial rating-specific haircuts of 26.0%, 20.0%, and 17.0% to the series 2017-A pool's base residual value, commensurate with 'AAA', 'AA', and 'A' rating scenarios, respectively. Excess concentration haircut In addition to the above base haircuts, we applied a haircut to the amount of lease residuals exceeding the concentration limits applicable to the benchmark pool (excess concentrations), as outlined in our auto lease criteria. The series 2017-A pool has a lease maturity excess concentration totaling 9% and total vehicle segment excess concentrations of 27%, resulting in an additional 5%, 4%, and 3% base residual haircut under our 'AAA', 'AA', and 'A' rating scenarios, respectively. NOVEMBER 8,

12 Speculative-grade manufacturer haircut We also look at the auto manufacturer's creditworthiness when determining the stress applied to the adjusted base residual value. Our auto lease criteria apply haircuts to the base residual value of the vehicles produced by manufacturers that have speculative-grade corporate credit ratings. The SRT 2017-A pool includes vehicles manufactured by Fiat Chrysler Automobiles N.V. (BB/Positive/B). We applied applicable haircuts based on the corporate credit ratings of the auto manufacturer. This resulted in additional base residual value haircuts of 6%, 5%, and 4% under our 'AAA', 'AA', and 'A' rating scenarios, respectively, bringing the total base residual value haircuts applied to the series 2017-A pool to 37%, 29%, and 24% of the base residual for the class A, B, and C notes, respectively. Low diversification haircut For pools with low diversification and that meet six conditions, as described in our auto lease criteria, we apply a low diversification haircut in addition to the other haircuts. The SRT 2017-A pool does not meet any of the conditions, so we did not apply the low diversification haircut. After analyzing the SRT 2017-A lease pool, applying the relevant residual value haircuts, and assessing stressed return rates of 100% for all rating category levels, our stressed residual loss is approximately 23%, 19%, and 16%, under our 'AAA', 'AA', and 'A' scenarios, respectively, as a percentage of the initial securitization value. Waived payment risk The third risk in this transaction, waived payment risk or pull-ahead risk, occurs when the dealer offers the lessee the option to terminate the lease early and waive all remaining lease payments if the lessee agrees to lease or purchase a new vehicle from the respective manufacturer and finances the related lease or loan contract with Chrysler Capital. Under this program, SC, as servicer, must reimburse the issuing entity for the waived payments if the dealer and lesee fail to pay the waived payments. If SC becomes insolvent, the issuing entity would lose these waived payments. We incorporated a waived payment risk into our cash flow analysis. Our analysis focused on limited pull-ahead activity SC provided. We assumed a historical maximum number of waived payments and applied it to the SRT 2017-A pool of non-defaulted leases. We tested SRT 2017-A's proposed structure using cash flow scenarios to determine if the credit enhancement level was sufficient to pay timely interest and principal in full by the notes' legal final maturity dates under our 'AAA', 'AA', and 'A' stress scenarios (see table 8 below). Cash Flow Modeling We modeled the transaction to simulate stress scenarios commensurate with the assigned preliminary ratings. Our cash flow analysis assumed a class A-3 and A-4 size of $254.0 million and $59.6 million, respectively. All other classes are the same as shown in the preliminary ratings table. In our cash flow analysis, we applied appropriate stresses for a possible class A-2 unhedged, floating-rate note issuance up to a maximum of $127 million. The results show that the preliminary rated notes are enhanced to the degree necessary to withstand a level of stressed credit, residual, and waived payment losses that are consistent with the assigned preliminary ratings. The class A notes can withstand a NOVEMBER 8,

13 cumulative credit loss of 5.50%-6.00% (or approximately 5x our expected loss range), residual losses equal to 23%, and waived payment loss of 0.9%, all as a percentage of the initial aggregate securitization value (see table 8). The class B notes can withstand a cumulative net credit loss of 4.40%-4.80% (or approximately 4x our expected loss range), residual losses equal to 19%, and waived payment loss of 0.9%, all as a percentage of the initial aggregate securitization value. The class C notes can withstand a cumulative net credit loss of 3.30%-3.60% (or approximately 3x our expected loss range), residual losses of 16%, and waived payment loss of 0.9%, all as a percentage of the initial aggregate securitization value. Table 8 Cash Flow Assumptions And Results Class A Class B Class C Scenario (preliminary rating) AAA(sf) AA(sf) A (sf) Cumulative net loss percent (%) Cumulative net loss timing 12/24/36 12/24/36 12/24/36 Cumulative net loss (%) 40/80/100 40/80/100 40/80/100 PPC voluntary prepayments (%) Recoveries (%) Recovery lag (mos.) Residual haircut Total residual haircut as a percent of the securitization value Total residual haircut as a percent of the undiscounted base residual value Vehicle return rate (%) Nondefaulting leases (%) Residual realization lag (mos.) Waived payment stress as a percent of the securitization value (%) Result S&P Global Ratings' approximate stressed credit, residual, and waived payment loss as a percentage of the securitization value (%) Approximate credit enhancement as a percent of the securitization value (%) Sensitivity Analysis In addition to running stressed cash flows to analyze the amount of credit, residual, and waived payment losses that the SRT 2017-A transaction can withstand, we ran a sensitivity analysis to determine how credit, residual, and waived payment losses in line with a moderate stress scenario, or a 'BBB' rating stress, could affect the preliminary ratings on the notes. According to our ratings stability criteria, we will not assign a preliminary 'AAA' or 'AA ' rating if we anticipate that the rating would decline by more than one rating category in the first year during a moderate stress scenario. Similarly, we will not assign a preliminary 'A' rating if we anticipate that the rating would decline by more than two rating categories in the first year during the same moderate stress scenario. We will also not assign preliminary ratings if we anticipate that the rating would decline by more than three rating categories in a three-year horizon under moderate stress conditions. NOVEMBER 8,

14 In our view, under the 'BBB' moderate stress scenario, all else being equal, we would expect our ratings on the class A, B, C, and D notes to remain within one rating category of the assigned preliminary ratings in the first year and remain within three rating categories of the assigned preliminary ratings over a three-year horizon (see chart 3). Chart 3 Money Market Tranche Sizing The proposed money market tranche (the class A-1 notes) has a 12-month legal final maturity date (Nov. 20, 2018 ). To test whether the money market tranche can be repaid by month 12, we ran cash flows using assumptions to delay the principal collections during the 12-month period. In our cash flow run, we assumed zero defaults and a zero absolute prepayment speed on all leases. We also stressed the recognition of the monthly lease payments and base residual amounts by applying a lag of one and two months, respectively. Based on our cash flow runs, approximately eight months of collections would be sufficient to pay off the money market tranche. NOVEMBER 8,

15 Legal Final Maturity To test the legal final maturity dates set for the longer-dated tranches (i.e., classes A-2, A-3, A-4, B, and C), we determined the date on which the respective notes were fully amortized in a zero-loss, zero-prepayment scenario and then added six months to the result. We also looked to see when these notes paid off in our stressed cash flow scenarios. In addition, we ran a break-even stress cash flow scenario assuming that the available credit enhancement is used to cover losses and looked to see when the class A-2, A-3, A-4, B, and C notes paid off under this scenario. For the longest-dated security, class C, approximately nine months were added to the tenor of the latest-maturing receivable in the pool to accommodate residual realization on the receivables. In all of our cash flow scenarios, we confirmed there is sufficient credit enhancement to both cover losses and repay the related notes in full by their legal final maturity dates. Santander Consumer USA (SC) SC was established as an independent entity under the name Drive Financial Services on Aug. 18, Before being acquired by Banco Santander S.A. on Dec. 7, Drive Financial Services was 64.5% owned by BoS (USA) Drive Inc., a wholly owned subsidiary of HBOS Group PLC, and 35.5% owned by Drive Financial Services' management. Banco Santander S.A. completed its acquisition of Drive Financial Services on Dec. 7, 2006, for $771 million in cash, resulting in a 91.5% ownership of the company. SC has been a part of Santander Holdings U.S.A. Inc. (SHUSA) since 2009, when Banco Santander S.A. contributed the business to SHUSA. In the past few years, various changes have occurred in SHUSA's ownership interest in and accounting for SC. Specifically, in December 2011, SC issued stock privately to investors, lowering SHUSA's ownership to 65% from 90%. At that time, SC was deconsolidated from SHUSA's balance sheet. Then, in January 2014, investors and SHUSA sold a portion of SC stock in an IPO. Following the IPO, SHUSA sold down its ownership to 59% of SC. Even though SHUSA's ownership of the subsidiary was reduced, SC was again fully consolidated on SHUSA's balance sheet after the investor group's stake sale. In our corporate analysis, and in line with the accounting treatment, we have continually viewed SC as if it were wholly owned by SHUSA because we believe that SHUSA bears the risk of this subsidiary and is ultimately responsible for its support. SHUSA has been seeking regulatory approval to increase its ownership in SC to 69% by acquiring the approximate 10% stake owned by SC's former CEO who resigned in July SC, based in Dallas, originates and services auto loans and leases through a network of more than 17,000 dealers nationwide. Since February 2013, it has also served as FCA's preferred lender by originating auto loans across the full credit spectrum. In 2016, SC originated approximately $21.9 billion in auto-related receivables, comprising 38% core subprime auto loans, 37% Chrysler Capital retail auto loans, and 25% Chrysler Capital auto leases. As of Dec. 31, 2016, it had $38 billion in assets, $34 billion in finance receivables and leases, and $5.2 billion in shareholder equity. Including servicing for third parties, its average managed consumer portfolio totaled $52.7 billion in The company reported that it earned a net income of $766 million in 2016, down 7% from $824 million the prior year. NOVEMBER 8,

16 Banco Santander S.A., headquartered in Madrid, is a worldwide banking organization that was established in 1857 and is a European leader in consumer finance with activities in 13 European countries, particularly Spain, Germany, Italy, and Poland. Banco Santander S.A. owns 100% of SHUSA, which now has approximately 59.0% equity interest in SC. Banco Santander S.A. is the largest financial institution by assets in Spain, and the credit rating is related to the sovereign credit ratings on Spain (BBB+/Stable/A-2). On Aug. 28, 2017, Jason Kulas was replaced as CEO for SC by Scott Powell. Mr. Powell had previously been serving as CEO for SHUSA since March 2015, and had served on the SC board since September On Oct. 2, 2017, SC announced that Juan Carlos Alvarez, previously corporate treasurer of SHUSA, would succeed Ismail (Izzy) Dawood as chief financial officer of SC, effective immediately. In addition, Sandra Broderick joined SC as executive vice president, head of operations on Oct. 10, overseeing originations, servicing and default, and other operations functions including administrative oversight of Santander Consumer International, Puerto Rico. Chrysler Capital Division SC and FCA entered into an agreement in February 2013 to form the Chrysler Capital Division, which would serve as the automaker's preferred lender. Chrysler Capital Division is an operating unit within SC and is not a separate legal entity. The companies agreed on a 10-year deal effective May 1, For the three years before this agreement, SC had a turndown program with FCA, in which it reviewed credit applications from FCA dealers that were turned down by Ally Financial, FCA's preferred lender at that time. Under the new deal, Santander Consumer retains control of credit policy and underwriting guidelines as well as the servicing and collection practices. SC uses a highly automated process to review contracts, and underwriters have limited ability to approve exceptions. Just as a captive finance entity is under pressure to help its parent sell vehicles, we believe Santander Consumer is highly motivated to meet certain penetration rates (the percentage of vehicles that are financed under the Chrysler Capital Division private-label brand). Although this incentive, as well as the preferred lender arrangement in general, represents a sizable increase in monthly origination volume that could cause operational challenges, management has communicated to us that the requisite staffing resources were in place before the program started. Further, we believe the company's highly automated underwriting processes should help manage growth. As such, we will be closely watching to see how the issuer's securitized pool credit quality migrates over time and if loss performance matches our expectations. Related Criteria General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017 Criteria - Structured Finance - General: Ratings Above The Sovereign - Structured Finance: Methodology And Assumptions, Aug. 8, 2016 Criteria - Structured Finance - General: Methodology: Criteria For Global Structured Finance Transactions Subject To A Change In Payment Priorities Or Sale Of Collateral Upon A Nonmonetary EOD, March 2, 2015 Criteria - Structured Finance - General: Criteria Methodology Applied To Fees, Expenses, And Indemnifications, July 12, NOVEMBER 8,

17 General Criteria: Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012 Criteria - Structured Finance - RMBS: U.S. Interest Rate Assumptions Revised For May 2012 And Thereafter, April 30, 2012 Criteria - Structured Finance - ABS: Revised General Methodology And Assumptions For Rating U.S. ABS Auto Lease Securitizations, Nov. 29, 2011 Criteria - Structured Finance - ABS: General Methodology And Assumptions For Rating U.S. Auto Loan Securitizations, Jan. 11, 2011 Criteria - Structured Finance - General: Standard & Poor's Revises Criteria Methodology For Servicer Risk Assessment, May 28, 2009 Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Special-Purpose Entities, Oct. 1, 2006 Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Appendix III: Revised UCC Article 9 Criteria, Oct. 1, 2006 Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Criteria Related To Asset-Backed Securities, Oct. 1, 2006 Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Securitizations By Code Transferors, Oct. 1, 2006 Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Select Issues Criteria, Oct. 1, 2006 Related Research Global Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, 2016 In addition to the criteria specific to this type of security (listed above), the following criteria articles, which are generally applicable to all ratings, may have affected this rating action: "Post-Default Ratings Methodology: When Does Standard & Poor's Raise A Rating From 'D' Or 'SD'?," March 23, 2015; "Global Framework For Assessing Operational Risk In Structured Finance Transactions," Oct. 9, 2014; "Methodology: Timeliness of Payments: Grace Periods, Guarantees, And Use of 'D' And 'SD' Ratings," Oct. 24, 2013; "Counterparty Risk Framework Methodology And Assumptions," June 25, 2013; "Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings," Oct. 1, 2012; "Methodology: Credit Stability Criteria," May 3, 2010; and "Use of CreditWatch And Outlooks," Sept. 14, Analytical Team Primary Credit Analyst: Steve D Martinez, New York (1) ; steve.martinez@spglobal.com Secondary Contact: Jennie P Lam, New York (1) ; jennie.lam@spglobal.com NOVEMBER 8,

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