Research: Rating Action: Moody’s assigns definitive ratings to Santander Drive Auto Receivables Trust 2022-6 notes

Approximately $1.8 billion of asset-backed securities rated

Toronto, September 21, 2022 — Moody’s Investors Service (“Moody’s”) has assigned definitive ratings to the notes issued by Santander Drive Auto Receivables Trust 2022-6 (SDART 2022-6). This is the sixth SDART auto loan transaction of the year for Santander Consumer USA Inc. (SC; unrated). The notes are backed by a pool of retail automobile loan contracts originated by SC, who is also the servicer and administrator for the transaction.

The complete rating actions are as follows:

Issuer: Santander Drive Auto Receivables Trust 2022-6

Class A-1 Notes, Definitive Rating Assigned P-1 (sf)

Class A-2 Notes, Definitive Rating Assigned Aaa (sf)

Class A-3 Notes, Definitive Rating Assigned Aaa (sf)

Class B Notes, Definitive Rating Assigned Aaa (sf)

Class C Notes, Definitive Rating Assigned Aa1 (sf)

Class D Notes, Definitive Rating Assigned Baa1 (sf)

RATINGS RATIONALE

The ratings are based on the quality of the underlying collateral and its expected performance, the strength of the capital structure, and the experience and expertise of SC as the servicer.

The definitive rating for the Class C notes, Aa1 (sf), is one notch higher than its provisional rating, (P)Aa2 (sf), and the definitive rating for the Class D notes, Baa1 (sf), is one notch higher than its provisional rating, (P)Baa2 (sf). This difference is a result of the transaction closing with a lower weighted average cost of funds (WAC) than Moody’s modeled when the provisional ratings were assigned. The WAC assumption as well as other structural features, were provided by the issuer.

Moody’s median cumulative net loss expectation for SDART 2022-6 is 14.0% and loss at a Aaa stress is 41.0%. Moody’s based its cumulative net loss expectation and loss at a Aaa stress on an analysis of the credit quality of the underlying collateral; the historical performance of similar collateral, including securitization performance and managed portfolio performance; the ability of SC to perform the servicing functions; and current expectations for the macroeconomic environment during the life of the transaction.

At closing the Class A notes, Class B notes, Class C and Class D notes benefit from 45.20%, 35.95%, 25.20% and 13.80% of hard credit enhancement, respectively. Hard credit enhancement for the notes consists of a combination of overcollateralization, a non-declining reserve account and subordination. The notes may also benefit from excess spread.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was “Moody’s Global Approach to Rating Auto Loan- and Lease-Backed ABS” published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/390478. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Factors that would lead to an upgrade or downgrade of the ratings:

Up

Moody’s could upgrade Class C and D notes if levels of credit enhancement are higher than necessary to protect investors against current expectations of portfolio losses. Losses could decline from Moody’s original expectations as a result of a lower number of obligor defaults or appreciation in the value of the vehicles securing an obligor’s promise of payment. Portfolio losses also depend greatly on the US job market and the market for used vehicles. Other reasons for better-than-expected performance include changes to servicing practices that enhance collections or refinancing opportunities that result in prepayments.

Down

Moody’s could downgrade the notes if, given current expectations of portfolio losses, levels of credit enhancement are consistent with lower ratings. Credit enhancement could decline if excess spread is not sufficient to cover losses in a given month. Moody’s expectation of pool losses could rise as a result of a higher number of obligor defaults or deterioration in the value of the vehicles securing an obligor’s promise of payment. Portfolio losses also depend greatly on the US job market, the market for used vehicles, and poor servicing. Other reasons for worse-than-expected performance include errors on the part of transaction parties, inadequate transaction governance, and fraud. Additionally, Moody’s could downgrade the Class A-1 Notes short-term rating following a significant slowdown in principal collections that could result from, among other things, high delinquencies or a servicer disruption that impacts obligor’s payments.

REGULATORY DISCLOSURES

For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.

Moody’s took into account one or more third party due diligence assessment(s) regarding the underlying assets or financial instruments (the “Due Diligence Assessment(s)”) in this credit rating action and used the Due Diligence Assessment(s) in preparing the ratings. This had a neutral impact on the ratings.

The Due Diligence Assessment(s) referenced herein were prepared and produced solely by parties other than Moody’s. While Moody’s uses Due Diligence Assessment(s) only to the extent that Moody’s believes them to be reliable for purposes of the intended use, Moody’s does not independently audit or verify the information or procedures used by third-party due-diligence providers in the preparation of the Due Diligence Assessment(s) and makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of the Due Diligence Assessment(s).

Further information on the representations and warranties and enforcement mechanisms available to investors are available on https://ratings.moodys.com/documents/PBS_1342908.

The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody’s estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each rated instrument.

Moody’s quantitative analysis entails an evaluation of scenarios that stress factors contributing to the sensitivity of ratings and takes into account the likelihood of severe collateral losses or impaired cash flows. Moody’s weighs the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer https://ratings.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are requested. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK . Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.

Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Yu Hang Jeffrey Lun
Asst Vice President – Analyst
Structured Finance Group
Moody’s Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Joseph Grohotolski
VP – Senior Credit Officer
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody’s Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

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