Santander Drive Auto Receivables Trust

Transcription

1 Presale: Santander Drive Auto Receivables Trust This presale report is based on information as of May 18, 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(i) Class Preliminary rating(ii) Type Interest rate(iii) Preliminary amount (mil. $)(iii) Legal final maturity date A-1 A-1+ (sf) Senior Fixed June 15, 2018 A-2 AAA (sf) Senior Fixed March 16, 2020 A-3 AAA (sf) Senior Fixed Dec. 15, 2020 B AA (sf) Subordinate Fixed Oct. 15, 2021 C A (sf) Subordinate Fixed Aug. 15, 2022 D BBB (sf) Subordinate Fixed July 17, 2023 E BB (sf) Subordinate Fixed Sept. 16, 2024 (i)the issuer provided two structures: a larger pool with a rated debt issuance amount of $1.32 billion and a smaller one with a rated debt issuance amount of $1.06 billion. The issuer will securitize one of these pools at closing. We've shown the larger of the two above. The preliminary ratings are the same for both pools/structures. (ii)the rating on each class of securities is preliminary and subject to change at any time. (iii)the interest rates and the actual size of all these tranches will be determined on the pricing date. Profile Expected closing date May 30, Collateral Originator, sponsor, servicer, and seller Structuring lead manager Indenture trustee Subprime auto loan receivables. Santander Consumer USA Inc., a subsidiary of Santander Holdings USA Inc. (BBB+/Stable/A-2). J.P. Morgan Securities LLC. Wells Fargo Bank N.A. (AA-/Negative/A-1+). Primary Credit Analyst: Amy S Martin, New York (1) ; amy.martin@spglobal.com Secondary Contact: Jenna Cilento, New York (1) ; jenna.cilento@spglobal.com See complete contact list on last page(s) MAY 18,

2 Profile (cont.) Owner trustee Wilmington Trust N.A. (A/Negative/A-1). Credit Enhancement Summary Subordination (% of the initial receivables)(i) (ii) (ii) (iii) (iv) Class A Class B Class C Class D Class E Overcollateralization (% of initial receivables) Initial Target plus plus Floor Reserve fund (% of the initial receivables) Initial Target Floor Total initial hard credit enhancement (% of the initial receivables) Class A Class B Class C Class D Class E Excess spread per year (estimated %)(v) 9.48% (i)principal on the preliminary rated notes will be paid sequentially. (ii)the target overcollateralization for the and transactions is 16.00% of the outstanding pool balance plus 1.00% of the initial pool balance. The target overcollateralization will increase to 25.00% of the current pool balance plus 1.00% of the initial receivables if the CNL triggers are violated. (iii)we did not assign ratings to For , the overcollateralization target amount is the greater of 16.25% of the current pool balance and 1.50% of the initial pool balance. The target overcollateralization decreases to 15.25% after the class A-2 notes have been paid in full. The target overcollateralization amount will increase to 25.0% of the current pool balance if the CNL triggers are breached. (iv)for , the overcollateralization target amount is the greater of 17.00% of the current pool balance and 1.50% of the initial pool balance. The target overcollateralization decreases to 16.00% after the class A-2 notes have been paid in full. The target overcollateralization amount will increase to 25.0% of the current pool balance if the CNL triggers are breached. (v)includes the 3.0% servicing fee. --Santander Drive Auto Receivables Trust. CNL--Cumulative net loss. Rationale The preliminary ratings assigned to Santander Drive Auto Receivables Trust 's ( 's) $1.32 billion ($1.06 billion if not upsized) automobile receivables-backed notes series reflect: The availability of 53.80%, 46.86%, 37.34%, 30.14%, and 26.74% of credit support for the class A (A-1, A-2, A-3), B, C, D, and E notes, respectively, based on stress cash flow scenarios (including excess spread), which provide coverage of approximately 3.30x, 2.85x, 2.25x, 1.70x, and 1.50x our 15.75%-16.50% expected cumulative net loss (CNL; see the Cash Flow Modeling section for more information). MAY 18,

3 The timely interest and principal payments made under stressed cash flow modeling scenarios appropriate to the assigned preliminary ratings. Our expectation that under a moderate ('BBB') stress scenario (1.7x our expected loss level), all else being equal, our ratings on the class A, B, and C notes ('AAA (sf)', 'AA (sf)', and 'A (sf)', respectively) will remain within one rating category, and our ratings on the class D notes ('BBB (sf)') will remain within two rating categories of the assigned preliminary ratings while they are outstanding. These rating movements are within the outer bounds specified by our credit stability criteria. These criteria indicate that we would not assign 'AAA (sf)' and 'AA (sf)' ratings if, under moderate stress conditions, the ratings would be lowered by more than one rating category within the first year and by more than three rating categories over a three-year period. The criteria also specify that we would not assign 'A (sf)' and 'BBB (sf)' ratings if such ratings would fall by more than two categories in one year or three categories over three years. The class E 'BB (sf)' rated notes will remain within two rating categories of the assigned preliminary rating during the first year but will eventually default under the 'BBB' stress scenario, after having received 79%-82% of their principal. Santander Consumer USA Inc. (SC; originator/servicer's) long history of originating and servicing subprime auto loan receivables. Our analysis of nine years of origination static pool data on SC's lending programs. Six years of performance on SC's securitizations since it re-entered the asset-backed securities market in The transaction's payment/credit enhancement and legal structures. Structural Changes From Series The significant structural changes from , in our view, are: Hard credit enhancement at closing has increased 140 basis points (bps), 115 bps, 70 bps, and 100 bps for classes A, B, C, and D, respectively, due to increases in subordination (see the Credit Enhancement Summary table above). Collateral Changes From Series The issuer provided two pools, a large and a small pool, which are very similar. The larger pool has a rated debt issuance amount of $1.32 billion, and the smaller one has a rated debt issuance amount of $1.06 billion. The issuer will securitize one of these pools at closing. Our analysis below highlights changes between the larger of the two pools relative to the series pool. In our view, the significant collateral changes from are: The percentage of loans with original terms of months declined to 7.7% from 12.27%. The weighted average loan-to-value (LTV) of the pool declined to from %. The weighted average FICO of the overall pool increased to 614 from 609. The percentage of loans with no FICO increased to 12.22% from 10.68%. The weighted average loss forecast score (LFS) score increased to 555 from 552. Our expected CNL range for this transaction is 15.75%-16.50% compared to 15.50%-16.25% for series (see the S&P Global Ratings Expected Loss section). While the pool is similar to the series pool on several measures, and has a better weighted average LTV, the FICO score distribution is weaker, and SC's recoveries continue to decline. MAY 18,

4 Key Rating Considerations We considered the following key strengths in rating this transaction: SC, the originator/servicer of the assets, is owned by Santander Holdings U.S.A Inc. (BBB+/Stable/A-2). Further, we consider SHUSA a highly strategic subsidiary of Banco Santander S.A. (A-/Stable/A-2) that would receive support from its parent, which owns 100% of SHUSA, if needed (see How Worsening Auto Finance Conditions Could Affect Banks, Nonbank Finance Companies, And Captive Finance Companies, published May 8, 2017). SC has a long track record of originating and securitizing subprime auto loans. SC's key officers have many years' experience in the auto business. SC has had stable securitization performance from 2013 through However, similar to other companies, SC's 2016 securitizations are reporting lower recovery rates. While it is not a transaction requirement, SC has generally repurchased contracts from its securitized pools that have not made their first two payments. These repurchases have ranged between 100 to 200 bps per transaction for outstanding S&P Global Ratings-rated transactions. While we view this positively, it is optional and could be discontinued if the company's financial position or relationship with its parent weakened considerably. There is a CNL trigger that increases the target overcollateralization by an additional 10% measured as a percent of the current pool balance. In addition to the strengths outlined above, we considered the following weaknesses: The pool has a high percentage of loans with no FICO (12%). Approximately 90% of the obligors in the pool have not had their incomes verified, which is consistent with previous pools. Approximately 7.7% of the loans in the pool have original maturities of months. Based on SC data, these loans experience CNLs that are approximately 1.5x the level of SC's month loans. We believe SC has tried to limit the higher loss severity associated with these longer-term loans because the weighted average LTV for them is 97.22% compared to 107% for the overall pool. Similar to other auto finance companies, since July 2014, the sponsor has received civil subpoenas and civil investigative demands from various federal and state agencies--including from the Department of Justice, the SEC, and several state attorneys general--requesting documents that, among other things, relate to the origination, underwriting, and securitization of auto loans for varying time periods since In March 2017, SC entered into settlements (aggregate amount of $26 million) with the attorneys general of Massachusetts and Delaware to settle allegations that it facilitated the origination of certain Massachusetts and Delaware loans that it knew--or should have known--were in violation of applicable state consumer protection laws. These types of investigations and proceedings could result in adverse consequences to SC. We monitor these developments and discuss them with SC management. The above settlement covered loans purchased in those states from Since then, the company has expanded its dealer review process. Further, the settlement requires that SC ensure no third-party that holds an interest in a loan originated by a dealer and purchased by SC will suffer a loss of principal as a result of the loan's default, if the loan was made by a dealer on the High Risk Dealer list and at the time the loan was made, the borrower was not required to provide proof of income. The risk of default from income inflation is often detected during the loan's earliest stages (first two payments), and SC has consistently repurchased loans that have failed to make their first two payments. MAY 18,

5 Transaction Overview will issue approximately $1.323 billion in securities (assuming that SC securitizes the larger pool) backed by retail installment sales contracts for new and used automobiles and light-duty trucks. The transaction is structured as a true sale of the receivables to Santander Drive Auto Receivables LLC (the depositor) from SC (the originator, sponsor, servicer, and seller) and then to (the issuer), which has pledged its interest in the receivables to the indenture trustee on the noteholders' behalf. 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 (see chart 1 for the transaction structure). MAY 18,

6 Transaction Structure The transaction incorporates the following structural features: A sequential-pay mechanism among the notes that results in increased credit enhancement for the rated notes as the pool amortizes. Initial overcollateralization of 12.00% of the initial pool balance, which grows to a target level using any excess spread available after covering net losses, to pay principal on the outstanding notes. The target overcollateralization will have a declining (16.00% of the outstanding pool balance) and a nondeclining (1.00% of the initial pool balance) portion, with an all-in floor of 1.50% of the initial pool balance. A loss trigger that will step up the overcollateralization target to the sum of 25.00% of the outstanding pool balance and 1.00% of the initial pool balance if the collateral performance deteriorates and losses exceed the loss threshold. The triggers will be tested monthly and are not curable. A nonamortizing reserve account that will be 1.00% of the initial pool balance and will be fully funded at closing. Payment Structure The notes will pay a fixed interest rate. Interest and principal are scheduled to be paid to the rated notes on each monthly distribution date on the 15th day of each month or, if that is not a business day, the next business day, beginning June 15, On each payment date, distributions will be made from available funds according to the payment priority in table 1. Table 1 Payment Waterfall Priority Payment 1 To the indenture and owner trustees, any accrued and unpaid fees and any reasonable expenses not previously paid by the servicer, capped at a $300,000 per year, in aggregate. 2 To the servicer, the servicing fee (3.00%) and all unpaid servicing fees with respect to previous periods. 3 To the class A noteholders, the accrued class A note interest due for the related interest period (paid pro rata). 4 The first principal allocation (the excess, if any, of the class A note balance over the pool balance). 5 To the class B noteholders, the accrued class B note interest due for the related interest period. 6 The second principal allocation (the excess, if any, of the combined class A and B note balances over the pool balance minus the first principal allocation). 7 To the class C noteholders, the accrued class C note interest due for the related interest period. 8 The third principal allocation (the excess, if any, of the combined class A, B, and C note balances over the pool balance minus the first and second principal allocations). 9 To the class D noteholders, the accrued class D note interest due for the related interest period. 10 The fourth principal allocation (the excess, if any, of the combined class A, B, C, and D note balances over the pool balance minus the first, second, and third principal allocations). 11 To the class E noteholders, the accrued class E note interest due for the related interest period. 12 The fifth principal allocation (the excess, if any, of the combined class A, B, C, D, and E note balances over the pool balance minus the first, second, third, and fourth principal allocations). 13 To the reserve account, any additional amounts required to make the cash on deposit in the reserve account equal to the specified reserve account balance. 14 The regular principal allocation, if any (in this step, the notes are paid down to build to the overcollateralization target). 15 To the certificate distribution account for the residual interest holder, any funds remaining. MAY 18,

7 Events Of Default Under the indenture, the occurrence and continuation of any of the following constitutes an event of default: A default in the interest payment on any of the controlling class' notes when due and payable that continues for five or more business days. A default in the principal payment on any note on the final scheduled payment or redemption date. The issuer fails to duly observe or perform its covenants or agreements. Any of the issuer's representations or warranties made under the indenture proves incorrect. The issuer files for bankruptcy. Payment Priority After An Event Of Default On each payment date after an event of default occurs, available funds will be distributed in the priority shown in table 2. Table 2 Payment Priority After An Event Of Default Priority Payment 1 Any accrued and unpaid fees to the indenture and owner trustees. 2 The servicing fee (3.00%) and all unpaid servicing fees to the servicer. 3 Interest, pro rata, to the class A noteholders. 4 If an acceleration of the notes occurs after or as a result of the event of default detailed in the first, second, or fifth bullets in the Events Of Default section above, pay in the following priority: principal to the class A-1 noteholders until the notes are paid in full; then principal to the class A-2 and A-3 noteholders, pro rata, based on each class' note balance until all class A notes are paid in full; then accrued class B note interest to the class B noteholders; then principal to the class B noteholders until the notes are paid in full; then accrued class C note interest to the class C noteholders; then principal to the class C noteholders until the notes are paid in full; then accrued class D note interest to the class D noteholders; then principal to the class D noteholders until the notes are paid in full; then accrued class E note interest to the class E noteholders; and then principal to the class E noteholders until the notes are paid in full. 5 If an acceleration of the notes has occurred after or as a result of the event of default detailed in the third or fourth bullets in the Events Of Default section above, pay in the following priority: accrued class B note interest to the class B noteholders; then accrued class C note interest to the class C noteholders; then accrued class D note interest to the class D noteholders; then accrued class E note interest to the class E noteholders; then principal to the class A-1 noteholders until the notes are paid in full; then principal to the class A-2 and A-3 noteholders, pro rata, based on each class' note balance until all of the class A notes are paid in full; then principal to the class B noteholders until the notes are paid in full; then principal to the class C noteholders until the notes are paid in full; then principal to the class D noteholders until the notes are paid in full; and then principal to the class E noteholders until the notes are paid in full. 6 Any remaining funds will be deposited into the certificate distribution account for distribution to, or at the direction of, the residual interest holder. Portfolio Performance SC's managed portfolio performance continued to weaken through March 31, 2017, with increasing delinquencies and net losses. As of March 31, 2017, delinquencies of 31 days or more increased to 12.41% from 11.46% a year earlier. Furthermore, annualized losses for the three months ended March 31, 2017, were 9.99% compared with 9.62% for the same period in Management has attributed the increases to a greater mix of deep subprime originations in 2015 and reduced origination volume in 2016 and SC's managed portfolio declined 6.22% to $25.2 billion as of March MAY 18,

8 31, 2017, from $26.8 billion a year earlier. Table 3 Managed Portfolio Principal amount outstanding at end of period (mil. $) As of March 31 As of Dec (ii) 25,154 26,821 25,247 26,498 22,862 21,128 16,206 14,139 14,801 Delinquencies (%) days days plus days and bankrupt accounts Total 31-plus-day delinquencies as a % of the principal amount outstanding(i) Net loss experience Average principal amount outstanding during the period (mil. $) Annualized net losses as a % of the average principal outstanding 25,148 26,620 26,045 25,459 22,499 18,918 15,124 14,325 10, (i)the servicer considers a receivable delinquent when an obligor fails to pay the required minimum portion of the scheduled payment by the due date, as determined per SC's customary servicing practices. With respect to Chrysler Capital receivables originated by the servicer before Jan. 1, 2017, the required minimum payment is 90% of the scheduled payment. With respect to all other receivables originated by the servicer or acquired by the servicer from an unaffiliated third-party originator before Jan. 1, 2017, the required minimum payment is 50% of the scheduled payment. With respect to receivables originated by the servicer or acquired by the servicer from an unaffiliated third-party originator on or after Jan. 1, 2017, the required minimum payment is 90% of the scheduled payment, regardless of which channel originated the receivable. In each case, the period of delinquency is based on the number of days payments are contractually past due. (ii)santander Consumer USA Inc.'s acquisition of the HSBC Automotive Trust (USA) and CitiFinancial Auto Ltd. receivables primarily drove the company's significant growth in SC--Santander Consumer USA Inc. Pool Analysis As of the April 30, 2017, cut-off date, the collateral pool consisted of approximately $1, billion in auto loans (see tables 4 and 5 for a collateral comparison of securitizations). Table 4 Collateral Comparison(i) (iv) Issuance date Feb. 28, 2017 Oct. 12, (iv) May 11, (iv) Feb. 17, Oct. 21, 2015 April 22, Feb. 25, 2015 Pool size (mil. $) 1, , , , , , , SC (% of pool) N.A. N.A. N.A Other (% of pool) Avg. original principal balance ($) N.A. N.A. N.A ,790 20,151 N.A. N.A. N.A. 19,723 19,819 19,557 MAY 18,

9 Table 4 Collateral Comparison(i) (cont.) Weighted avg. APR (%) Weighted avg. original term (mos.) (iv) (iv) (iv) Seasoning (mos.) New vehicles (%) Used vehicles (%) Weighted avg. LTV (%) Weighted avg. original FICO score(ii) No score (%) and lower (%) (%) and higher (%) Weighted avg. internal credit score(iii) and lower and higher Total % of loans with an original term of mos. Total % of loans with an original term for mos. Weighted avg. original FICO score for mos.(ii) Weighted avg. internal credit score for mos.(iii) Weighted avg. LTV for mos. Top five state concentrations (%) N.A. N.A. N.A N.A. N.A. N.A N.A. N.A. N.A TX=13.99 TX=17.01 TX=16.62 FL=18.35 FL=17.57 FL=15.63 TX=17.15 TX=16.99 FL=10.42 FL=13.39 FL=16.21 TX=15.36 TX=16.62 TX=15.25 FL=16.00 FL= MAY 18,

10 Table 4 Collateral Comparison(i) (cont.) S&P Global Ratings' original expected lifetime CNL (%) S&P Global Ratings' revised expected lifetime CNL (%) (iv) (iv) (iv) CA=8.01 CA=8.70 CA=9.04 CA=10.23 C=10.29 CA=10.46 CA=9.67 CA=10.22 GA=6.49 GA=5.99 GA=5.25 GA=4.98 GA=4.68 GA=5.07 GA=4.95 GA=5.20 PA=5.23 NY=4.32 NY=4.61 NY=4.08 NY=4.00 NY=3.45 NC=3.82 IL= N/A N/A N/A N/A N/A N/A N/A N/A (i) data is as of the April 30, 2017, cut-off date. (ii)excludes receivables of obligors with no FICO scores. (iii)sc uses a proprietary internal credit scoring methodology to underwrite and originate collateral. The internal score incorporates, among other factors, deal structure variables, such as cash down payment, LTV, payment-to-income, and debt-to-income ratios. The score ranges from 1 to 999, with a score of one indicating a greater likelihood of loss and a score of 999 indicating lower likelihood of loss. (iv)s&p Global Ratings did not rate the , or transactions. --Santander Drive Auto Receivables Trust. SC--Santander Consumer USA Inc. APR--Annual percentage rate. CNL--Cumulative net loss. LTV--Loan to value. N.A.--Not available. N/A--Not Applicable. Table 5 Collateral Comparison(i) Issuance date Sept. 17, 2014 June 18, 2014 Jan. 15, 2014 July 17, 2013 Pool size (mil. $) 1, , , , SC (% of pool) Other (% of pool) Avg. original principal balance ($) 19,790 18,763 19,098 20,205 19,697 Weighted avg. APR (%) Weighted avg. original term (mos.) Seasoning (mos.) New vehicles (%) Used vehicles (%) Weighted avg. LTV (%) Weighted avg. original FICO score(ii) No score (%) and lower (%) (%) and higher (%) Weighted avg. internal credit score(iii) and lower and higher MAY 18,

11 Table 5 Collateral Comparison(i) (cont.) Total % of loans with an original term of mos. Total % of loans with an original term for mos. Weighted avg. original FICO score for mos.(ii) Weighted avg. internal credit score for mos.(iii) Weighted avg. LTV for mos. Top five state concentrations (%) S&P Global Ratings' original expected lifetime CNL (%) S&P Global Ratings' revised expected lifetime CNL (%) TX=13.99 TX=18.29 TX=18.40 TX=17.86 TX=19.19 FL=10.42 FL=14.01 FL=13.57 FL=11.58 FL=11.02 CA=8.01 CA=9.93 CA=9.57 CA=8.55 CA=7.98 GA=6.49 GA=4.91 GA=4.63 GA=4.93 NC=4.88 PA=5.23 NC=3.94 NC=4.14 NC=4.81 GA= (i) data is as of the April 30, 2017, cut-off date. (ii)excludes receivables of obligors with no FICO scores. (iii)sc uses a proprietary internal credit scoring methodology to underwrite and originate collateral. The internal score incorporates, among other factors, deal structure variables such as cash down payment, LTV, payment-to-income, and debt-to-income. The score ranges from 1 to 999, with a score of one indicating greater likelihood of loss and a score of 999 indicating lower likelihood of loss. --Santander Drive Auto Receivables Trust. SC--Santander Consumer USA Inc. APR--Annual percentage rate. CNL--Cumulative net loss. LTV--Loan to value. Surveillance Update As of May 15, 2017, we had outstanding ratings on 12 transactions issued between 2012 and We reviewed all of the transactions we rate in 2016 and revised our expected lifetime CNLs during those reviews. We noted at the time that all of the transactions were performing in line with to slightly better than our expectations. After several more months of performance, these transactions are still performing in line with to slightly better than our revised expected CNLs. Table 6 Collateral Performance As Of The May 2017 Distribution Series Month Pool factor (%) Current CNL (%) Initial expected lifetime CNL (%) Revised expected lifetime CNL (%) 2012-A(i) (ii) (ii) (ii) (ii) A(ii) (ii) MAY 18,

12 Table 6 Collateral Performance As Of The May 2017 Distribution (cont.) Series Month Pool factor (%) Current CNL (%) Initial expected lifetime CNL (%) Revised expected lifetime CNL (%) (ii) (ii) (i) (i) (i) (i)revised expected CNL as of Nov. 22, (ii)revised expected CNL as of Aug. 16, CNL--Cumulative net loss. Each transaction has credit enhancement in the form of a reserve account, overcollateralization, and excess spread. In addition, all transactions were structured with subordination for the more-senior classes. For all outstanding classes, the credit support levels have grown as a percentage of the declining collateral balances. In addition, the overcollateralization for each series can step up to a higher target overcollateralization level if certain CNL metrics are breached. In our view, all of the classes have adequate credit enhancement at their current rating levels. We will continue to monitor the performance of each outstanding transaction and take rating actions as we deem appropriate. Chart 2a MAY 18,

13 Chart 2b Chart 2b shows that the 2015 vintage securitizations are generally trending in line with the 2013 and 2014 transactions on a CNL basis. Chart 3 shows that the 2014 and 2015 vintages are performing progressively better than the 2013 vintage in terms of overall charge-offs. However, those two vintages are both underperforming the 2013 vintage in cumulative recovery rates (see chart 4). The 2016 transactions, while early, are reporting even lower recovery rates. Weaker recoveries in recent vintages are a trend we have seen across most auto securitizations and are not necessarily unique to transactions. We will continue to monitor this trend. MAY 18,

14 Chart 3 MAY 18,

15 Chart 4 S&P Global Ratings Expected Loss: 15.75%-16.50% We examined static pool data from SC broken out by internal custom score bands. The custom score is based on obligor credit history and loan structure. We used the loss curves from the paid-off 2007, 2008, and 2009 vintages to project losses for the outstanding SC-originated collateral. We then applied the pool composition weights to the projected losses by internal score band to determine a weighted average loss projection for SC-originated collateral. We also examined origination static pool data broken out by custom score and term. Further, our analysis took into account repossession expenses, which the company started to net out from recoveries beginning with its 2016 securitizations, and we reviewed the company's repurchase activity on prior transactions, which has ranged between 2.20% and 2.78% for series , , and Based on the above analysis, the recent securitization performance, and a forward-looking view of the economy (namely lower expected recovery rates), we expect the transaction to experience CNLs in the 15.75%-16.50% range. MAY 18,

16 Cash Flow Modeling: Break-Even Cash Flows Cash flow modeling tests the availability and timing of excess spread. Excess spread, which can be a critical component of a transaction's overall credit enhancement, can be affected by many factors, such as the absolute level and timing of defaults, prepayment speeds, payment timing lags, and the collateral terms. We modeled the transaction to simulate stress scenarios appropriate for the assigned preliminary ratings (see table 7). We ran the following cash flows with the larger pool, but our cash flows on the smaller pool yielded almost identical results. Table 7 Cash Flow Assumptions And Results Class Front-loaded loss curve A B C D E Scenario (preliminary rating) AAA (sf) AA (sf) A (sf) BBB (sf) BB (sf) Loss timing input by months outstanding (12/24/36/48) (%) Loss timing by months outstanding (12/24/36/48) (%) 30/40/20/10 30/40/20/10 30/40/20/10 30/40/20/10 30/40/20/10 82/18 45/50/5 34/39/18/9 33/40/18/9 33/40/18/9 Voluntary ABS (%) Recoveries (%) Recovery lag (mos.) Servicing fee (%) Approximate break-even gross loss levels (100% credit to excess spread) (%)(i) Approximate break-even net loss levels (100% credit to excess spread) (%)(i) Back-loaded loss curve Scenario (preliminary rating) AAA (sf) AA (sf) A (sf) BBB (sf) BB (sf) Loss timing input by months outstanding (12/24/36/48) (%) Loss timing by months outstanding (12/24/36/48) (%) 25/30/20/15/10 25/30/20/15/10 25/30/20/15/10 25/30/20/15/10 25/30/20/15/10 81/19 47/45/8 34/34/21/11 30/31/18/14/7 29/31/18/13/9 Voluntary ABS (%) Recoveries (%) Recovery lag (mos.) Servicing fee (%) Approximate break-even gross loss levels (100% credit to excess spread) (%) (i) MAY 18,

17 Table 7 Cash Flow Assumptions And Results (cont.) Class Approximate break-even net loss levels (100% credit to excess spread) (%)(i) A B C D E (i)the maximum cumulative gross and net losses on the pool that the transaction can withstand without a payment default on the relevant classes of notes. ABS--Absolute prepayment speed. Using an expected net loss of 15.75%-16.50% of the initial pool and applying the transaction-appropriate stresses in our internal cash flow runs, the break-even results show that the class A through E notes are enhanced to the degree necessary to withstand stressed net loss levels that are consistent with the assigned preliminary ratings. As an additional break-even scenario, we tested the break-even levels using a recovery rate of 34% (85% of the 40% rate used above). We found that while the break-even CNL levels were higher with the lower recovery rate, the break-even cumulative gross loss levels were lower, but still adequate to support our ratings. We used the smaller pool and the front-loaded loss curve to analyze the results (see table 8). Table 8 Break-Even Scenario 34% recovery rate 40% recovery rate B/E CGL (%) B/E CNL (%) B/E CGL (%) B/E CNL(%) AAA AA A BBB BB B/E CGL--Break-even cumulative gross loss. B/E CNL--Break-even cumulative net loss. Loss Trigger Analysis The loss trigger increases the target overcollateralization amount to 25.00% of the current pool balance plus 1.00% of the initial pool balance, from 16.00% of the current pool balance plus 1.00% of initial pool balance, if the CNL threshold is breached. The CNL triggers are tested monthly and are not curable once breached (see table 8 below). In our break-even front- and back-loaded scenarios, the trigger was breached for classes A through E. However, excess spread was used to cover losses, and overcollateralization did not build above the initial target overcollateralization amount in most of those runs. The only scenarios in which overcollateralization briefly met the target amount were the 'BB' front- and back-loaded scenarios. In the front-loaded scenario, overcollateralization meets the target for months 6-8, but beginning in month 9, it falls below the target and never builds thereafter despite hitting the trigger in month 12. In the back-loaded scenario, overcollateralization meets the target for months 6 17, and the trigger is breached in month 18, which shuts off releases. While overcollateralization grows on a percentage basis (from 17.98% at month 17) up to 23.2% of current receivables in month 41, it doesn't actually grow in dollar terms, and it declines thereafter to MAY 18,

18 zero. Table 9 CNL Threshold Changes Month CNL threshold (%) and later CNL--Cumulative net loss. Sensitivity Analysis Besides analyzing break-even cash flows, we conducted a sensitivity analysis to see whether under a moderate ('BBB') stress scenario, all else being equal, our preliminary ratings would remain within the tolerances allowed by our rating stability criteria. We found that our ratings on the class A, B, and C securities ('AAA (sf)', 'AA (sf)', and 'A (sf)', respectively) will remain within one rating category, and our ratings on the class D securities ('BBB (sf)') will remain within two rating categories of our preliminary ratings while they are outstanding. These rating movements are within the tolerances specified by our credit stability criteria (see "Methodology: Credit Stability Criteria," published May 3, 2010). These criteria indicate that we would not assign 'AAA (sf)' and 'AA (sf)' ratings if, under moderate stress conditions, the ratings would be lowered by more than one category within the first year and by more than three categories over a three-year period. The criteria also specify that we would not assign 'A (sf)' and 'BBB (sf)' ratings if such ratings would fall by more than two categories in one year or three categories over three years. Under our criteria, the class E 'BB (sf)' rated notes are allowed to default over a three-year period, which they eventually do under our 'BBB' scenario after having received 78.4% of their principal in the front-loaded scenario and 81.9% in the back-loaded scenario (see table 10). Table 10 Sensitivity Analysis Summary: Moderate 'BBB' Stress (1.70x Base Case) Cumulative net loss level (16.25% x 1.70) (%) Loss timing input by months outstanding (12/24/36/48/60) (%) Fast loss curve Slow loss curve /40/20/10 25/30/20/15/10 Loss timing taken (12/24/36/48/60) (%) 33/40/18/9 29/31/18/14/8 Voluntary ABS (%) Recoveries (%) Recovery lag (mos.) 4 4 Servicing fee (%) MAY 18,

19 Table 10 Sensitivity Analysis Summary: Moderate 'BBB' Stress (1.70x Base Case) (cont.) Fast loss curve Slow loss curve Potential rating decline Class A ('AAA (sf)') One rating category One rating category Class B ('AA (sf)') One rating category One rating category Class C ('A (sf)') One rating category One rating category Class D ('BBB (sf)') Two rating categories Two rating categories Class E ('BB (sf)') ABS--Absolute prepayment speed. Chart 5 Class E defaults on principal in this scenario after paying off approximately 79% of the bonds Class E defaults on principal in this scenario after paying off approximately 82.2% of the bonds MAY 18,

20 Chart 6 Money Market Tranche Sizing The proposed money market tranche's (class A-1's) legal final maturity date is June 15, To test whether the money market tranche can be repaid by its maturity date, we ran cash flows using assumptions to delay the principal collections. We assumed zero defaults and a 0.25% absolute prepayment speed for our cash flow run, and we confirmed that the tranche would pay off within 12 months. Legal Final Maturity To test the legal final maturity dates set for the long-dated tranches, we determined the date when the respective notes would fully amortize in a zero-loss and zero-prepayment scenario and then added three months to the result for classes A-2 through D; for the longest-dated security (class E), we added 12 months to the tenor of the longest receivable in the pool to accommodate extensions on the receivables. Furthermore, in the break-even scenario for each rating level, we confirmed that credit enhancement was sufficient to both cover losses and repay the related notes in full by the legal final maturity date. MAY 18,

21 Santander Consumer USA Inc. SC was established as an independent entity under the name Drive Financial Services on Aug. 18, Before being acquired by Banco Santander S.A. (A-/Stable/A-2) on Dec. 7, 2006, 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 USA Inc. (SHUSA) since 2009, when Banco Santander S.A. (the parent of SHUSA) 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 Chrysler Group LLC'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. 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. (A-/Stable/A-2) owns 100% of SHUSA (BBB+/Stable/A-2). Banco Santander S.A. is the largest financial institution by assets in Spain, and its credit rating is related to the sovereign credit rating on Spain (BBB+/Stable/A-2). Related Criteria And Research 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, MAY 18,

22 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, 2012 General Criteria: Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012 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 How Worsening Auto Finance Conditions Could Affect Banks, Nonbank Finance Companies, And Captive Finance Companies, May 8, 2017 Global Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, Ratings Raised And 10 Ratings Affirmed From 13 Santander Drive Auto Receivables Trust Deals, Nov. 22, 2016 Twenty-Four Ratings Raised, Six Affirmed On Various Santander Drive Auto Loan Transactions, Aug. 12, 2016 Santander Holdings U.S.A. Inc., Aug. 5, 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, The primary analyst would like to Adrian Castro for his analytical contributions on this transaction. Analytical Team Primary Credit Analyst: Amy S Martin, New York (1) ; amy.martin@spglobal.com Secondary Contact: Jenna Cilento, New York (1) ; jenna.cilento@spglobal.com Surveillance Credit Analyst: Steve D Martinez, New York (1) ; steve.martinez@spglobal.com MAY 18,

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