DBRS Confirms Ratings on Five Atlantes Mortgage Transactions

DBRS Ratings Limited (DBRS) has today confirmed the ratings on the Class A notes of Atlantes Mortgage No. 2 (Atlantes 2), Atlantes Mortgage No. 3 (Atlantes 3), Atlantes Mortgage No. 4 (Atlantes 4), Atlantes Mortgage No.5 (Atlantes 5) and Atlantes Mortgage No. 7 (Atlantes 7) issued by GAMMA - Sociedade de Titularização de Créditos, S.A. (the Issuer) as follows:

-- Class A notes in Atlantes 2 at AA (low) (sf)
-- Class A notes in Atlantes 3 at AA (sf)
-- Class A notes in Atlantes 4 at AA (sf)
-- Class A notes in Atlantes 5 at AA (sf)
-- Class A notes in Atlantes 7 at AA (sf)

The confirmation of the ratings on the Class A notes reflects an annual review of the transactions and is based on the following analytical considerations, as described more fully below:

-- Portfolio performance, in terms of delinquencies and defaults, as of the latest available payment date for each transaction (November and December 2016 payment dates).
-- Portfolio default rate, loss given default (LGD) rate and expected loss assumptions for the remaining collateral pool.
-- Incorporation of a sovereign-related stress component in the rating analysis to address the impact of macroeconomic variables on collateral performance, given the long-term foreign and local currency rating of BBB (low) for the Republic of Portugal.
-- The current available credit enhancement to the Class A notes to cover the expected losses at the AA (low) (sf) and AA (sf) rating levels, respectively, for each transaction.

All five transactions are securitisations of portfolios of Portuguese residential mortgages originated and serviced by Banco Internacional do Funchal, S.A. (Banif), which was acquired by Banco Santander Totta, S.A. (Santander Totta) in December 2015.

The performances of the mortgage portfolios in all five transactions are within DBRS’s expectations. As of the November and December 2016 payment dates, loans more than 90 days delinquent as a percentage of the outstanding performing portfolio balance were at 3.5%, 3.7%, 3.67%, 3.64% and 2.45% for Atlantes 2, Atlantes 3, Atlantes 4, Atlantes 5 and Atlantes 7, respectively. The cumulative defaulted loans as a percentage of the original portfolio balance increased over the year and reached 3.95% for Atlantes 2; 3.37% for Atlantes 3; 3.62% for Atlantes 4; 3.55% for Atlantes 5; and 4.36% for Atlantes 7.

The credit enhancement (CE) to the Class A notes for the five transactions is provided by the subordination of the junior notes and a cash reserve. The CE available to the Class A notes increases as the transactions continue to deleverage. The CE increased to 19.21% for Atlantes 2; 29.88% for Atlantes 3; 30.94% for Atlantes 4; 35.94% for Atlantes 5; and 41.10% for Atlantes 7.

HSBC Bank plc is the Account Bank of the five transactions. The DBRS private rating on the Account Bank complies with the Minimum Institution Rating, given the ratings assigned to the Class A notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

The transactions envisage an interest rate swap agreement. As the language of the interest swap agreement is not in line with DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology, no benefit was given to such hedging in DBRS’s analysis.

Notes:
All figures are in euro unless otherwise noted.

The principal methodology applicable to the rating is “Master European Structured Finance Surveillance Methodology.”

DBRS has applied the principal methodology consistently and conducted a review of the transactions in accordance with the principal methodology.

A review of the transactions legal documents was not conducted as the legal documents have remained unchanged since the most recent rating actions for each transaction.

Other methodologies referenced in these transactions are listed at the end of this press release.

These may be found on www.dbrs.com at http://www.dbrs.com/about/methodologies.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” on http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of data and information used for these ratings include information provided by HSBC Bank plc for Atlantes 2, 3, 4 and 5, Deutsche Bank for Atlantes 7 and loan level data from the European DataWarehouse GmbH for the five transactions.

DBRS did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial ratings DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

The last rating action on these transactions took place on 9 February 2016, when DBRS confirmed the ratings on the Class A notes at AA (low) for Atlantes 2 and AA (sf) for Atlantes 3, 4, 5 and 7.

Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

-- DBRS expected a lifetime base case probability of default (PD) and LGD for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.
-- The base case PD and LGD of the Atlantes 2 current pool of mortgages are 8.35% and 4.07%, respectively. At the AA (low) (sf) rating level, the corresponding PD is 24.82% and the LGD is 12.41%.

-- The base case PD and LGD of the Atlantes 3 current pool of mortgages are 9.30% and 6.06%, respectively. At the AA (sf) rating level, the corresponding PD is 28.38% and the LGD is 16.34%.

-- The base case PD and LGD of the Atlantes 4 current pool of mortgages are 8.62% and 5.24%, respectively. At the AA (sf) rating level, the corresponding PD is 26.90% and the LGD is 13.66%.

-- The base case PD and LGD of the Atlantes 5 current pool of mortgages are 10.03% and 8.77%, respectively. At the AA (sf) rating level, the corresponding PD is 29.91% and the LGD is 21.27%.

-- The base case PD and LGD of the Atlantes 7 current pool of mortgages are 13.58% and 14.78%, respectively. At the AA (sf) rating level, the corresponding PD is 36.82% and the LGD is 28.14%.

-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating of the Class A notes would be expected to be at AA (low) (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A notes would be expected to be at BBB (low) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A notes would be expected to be at BBB (low) (sf).

Atlantes 2 Class A notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD, expected rating of BBB (high) (sf)
-- 50% increase in PD, expected rating of BBB (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf)

Atlantes 3, Atlantes 4, Atlantes 5 and Atlantes 7 Class A notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)

For further information on DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Lead Analyst: Antonio Di Marco, Senior Financial Analyst
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date: 17 May 2012

DBRS Ratings Limited
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United Kingdom
Registered in England and Wales: No. 7139960

The rating methodologies used in the analysis of this transaction can be found at http://www.dbrs.com/about/methodologies

-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Unified Interest Rate Model for European Securitisations
-- Derivative Criteria for European Structured Finance Transactions

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at http://www.dbrs.com/research/278375.