NEW YORK—Fitch Ratings assigns the following ratings and Outlooks to the Santander Drive Auto Receivables Trust 2016-2 (SDART 2016-2) notes:

--$191,200,000 class A-1 notes 'F1+sf';

--$267,000,000 class A-2-A 'AAAsf'; Outlook Stable;

--$83,000,000 class A-2-B notes 'AAAsf'; Outlook Stable;

--$161,920,000 class A-3 notes 'AAAsf'; Outlook Stable;

--$163,150,000 class B notes 'AAsf'; Outlook Stable;

--$175,290,000 class C notes 'Asf'; Outlook Stable;

--$104,500,000 class D notes 'BBBsf'; Outlook Stable;

--$67,420,000 class E notes 'BBsf'; Outlook Stable.

KEY RATING DRIVERS

Improved Credit Quality: 2016-2 is backed by collateral consistent with the 2014-2016 pools, with a WA FICO score of 600 and an internal WA loss forecast score (LFS) of 555. The WA seasoning is 2.5 months, new vehicles total 34.4%, and the pool is geographically diverse.

Increased Extended-Term Contracts: Despite the drop in 73-75 month loans to 4.6%, 60+ month loans still account for 91.2% of the pool, towards the higher end of the range historically for the platform. Consistent with prior Fitch-rated transactions, an additional stress was applied the loss proxy derivation for 73-75 month loans. Although performance history is limited, loss severity observed has been in excess of 61-72 loans thus far.

Weakening Performance: Although within range of the 2010-2012 performance, recent 2013-2015 portfolio and securitization losses are tracking higher. Loss frequency has been driven by weaker collateral underwriting while loss severity has increased due to the slightly weaker wholesale market and early stage defaults on extended term collateral. Fitch expects performance for the 2015 vintage to perform in line with 2013 and 2014, if not weaker.

Sufficient Credit Enhancement: The cash flow distribution is a sequential pay structure. Initial hard credit enhancement (CE) totals 49.85% for the class A notes consistent with 2016-1. Initial WA excess spread is 10.45% per annum.

Stable Corporate Health: SC's recent financial results have been weaker due to higher losses on the managed portfolio. However, the company has been profitable since 2007 and Fitch currently rates Santander, SC's majority owner, 'A-/F2'/Outlook Stable.

Consistent Origination/Underwriting/Servicing: SC demonstrates adequate abilities as originator, underwriter, and servicer, as evidenced by historical portfolio and securitization performance. Fitch deems SC capable to service this series.

Legal Structure Integrity: The legal structure of the transaction should provide that a bankruptcy of SC would not impair the timeliness of payments on the securities.

RATING SENSITIVITIES

Unanticipated increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels higher than the base case. This in turn could result in Fitch taking negative rating actions on the notes.

Fitch evaluated the sensitivity of the ratings assigned to Santander Drive Auto Receivables Trust 2016-2 to increased credit losses over the life of the transaction. Fitch's analysis found that the transaction displays some sensitivity to increased defaults and credit losses. This shows a potential downgrade of one or two categories under Fitch's moderate (1.5x base case loss) scenario, especially for the subordinate bonds. The notes could experience downgrades of three or more rating categories, potentially leading to distressed ratings (below 'Bsf') or possibly default, under Fitch's severe (2x base case loss) scenario.

DUE DILIGENCE USAGE

Fitch was provided with third-party due diligence information from Deloitte and Touche, LLP. The third-party due diligence focused on comparing or recomputing certain information with respect to 150 loans from the statistical data file. Fitch considered this information in its analysis and the findings did not have an impact on our analysis/conclusions. A copy of the ABS Due Diligence Form-15E received by Fitch in connection with this transaction may be obtained through the link contained on the bottom of this rating action commentary.

Fitch's analysis of the Representations and Warranties (R&W) of this transaction can be found in the reports titled 'Santander Drive Auto Receivables Trust 2016-2 -- Appendix'. These R&W are compared to those of typical R&W for the asset class as detailed in the special report 'Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions' dated March 2016.

Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report, available at 'www.fitchratings.com' or by clicking on the link.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 19 Dec 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=838868

Criteria for Servicing Continuity Risk in Structured Finance (pub. 17 Dec 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=875586

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Rating Criteria for U.S. Auto Loan ABS (pub. 21 Mar 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878723

Related Research

Santander Drive Auto Receivables Trust 2016-2 -- Appendix
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=880976

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1004305

ABS Due Diligence Form 15E 1
https://www.fitchratings.com/creditdesk/press_releases/content/ridf15E_frame.cfm?pr_id=1004305&flm_nm=15e_1004305_1.pdf

Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1004305

Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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