DBRS Upgrades Ratings on Five Atlantes Mortgage Transactions

DBRS Ratings Limited (DBRS) upgraded the following ratings on five Atlantes Mortgage transactions:

Atlantes Mortgage N º 2 (AM2):
-- Class A Notes upgraded to AA (sf) from AA (low) (sf)

Atlantes Mortgage N º 3 (AM3):
-- Class A Notes upgraded to AA (high) (sf) from AA (sf)

Atlantes Mortgage N º 4 (AM4):
-- Class A Notes upgraded to AA (high) (sf) from AA (sf)

Atlantes Mortgage N º 5 (AM5):
-- Class A Notes upgraded to AA (high) (sf) from AA (sf)

Atlantes Mortgage N º 7 (AM7):
-- Class A Notes upgraded to AA (high) (sf) from AA (sf)

The rating actions follow an annual review of the transactions and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies and defaults, as of the latest payment date for each transaction;
-- Probability of default (PD), loss given default rate (LGD) and expected loss assumptions for the outstanding collateral pools; and
-- The current credit enhancement (CE) available to the rated notes to cover the expected losses at their respective rating level.

The ratings on the Class A Notes address timely payments of interest and ultimate repayment of principal on or before the relevant final maturity date.

The transactions are securitisations of Portuguese prime residential mortgages originated by Banco Internacional do Funchal S.A. (Banif). In December 2015, following the resolution measure applied to Banif, Banco Santander Totta S.A. (Santander Totta) acquired some of the specific assets and liabilities of the bank without any interruption on servicing activity. Santander Totta currently services the portfolios. Banco BPI S.A. was appointed as Back-up Servicer.

PORTFOLIO PERFORMANCE
The portfolios are performing within DBRS’s expectations. The 90+ delinquencies of the transactions have been decreasing since last year and the respective ratios stood at 1.9%, 2.2%, 2.0%, 1.7% and 0.6% of the collateral pool of AM2, AM3, AM4, AM5 and AM7. The cumulative default ratios were at 4.7%, 4.2%, 3.5%, 3.9% and 5.5% of the original portfolio balance of AM2, AM3, AM4, AM5 and AM7, respectively.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the remaining collateral pools of receivables and updated its PD and LGD assumptions:
-- For AM2, the base-case PD and LGD are 7.8% and 4.1%, respectively;
-- For AM3, the base-case PD and LGD are 8.4% and 6.7%, respectively;
-- For AM4, the base-case PD and LGD are 8.1% and 6.4%, respectively;
-- For AM5, the base-case PD and LGD are 9.2% and 8.0%, respectively; and
-- For AM7, the base-case PD and LGD are 10.7% and 12.7%, respectively.

CREDIT ENHANCEMENT
The CEs available to all rated notes have continued to increase as the transactions continue to deleverage. The CEs consist of the overcollateralisation provided by the outstanding collateral portfolios and include the Cash Reserves. For AM2, as of December 2017, the CE to the Class A Notes was 21.9%, increasing from 19.2% as of December 2016. For AM3, as of November 2017, the CE to the Class A Notes was 33.1%, increasing from 29.9% as of November 2016. For AM4, as of December 2017, the CE to the Class A Notes was 34.2%, increasing from 30.9% as of December 2016. For AM5, as of November 2017, the CE to the Class A Notes was 40.2%, increasing from 35.9% as of November 2016. For AM7, as of November 2017, the CE to the Class A Notes was 45.9%, increasing from 41.1% as of November 2016.

The Cash Reserve of AM2 is available to pay senior fees and expenses, missed interest on the Class A Notes, and to clear the principal deficiency ledger (PDL) of Class A Notes. The Cash Reserve is also available to pay missed interest on the Class B and Class C notes and to clear the PDL of Class B and Class C notes, which are not rated by DBRS. As of December 2017, the Cash Reserve was equal to EUR 14.8 million and hence not at its target level of EUR 16.1 million

The Cash Reserve of AM3, AM4, AM5 and AM7 is available to pay senior fees and expenses, missed interest on the Class A Notes, and to clear the PDL of Class A Notes. As of November 2017, the Cash Reserves of AM3 was equal to its target level of EUR 57.7 million. As of December 2017, the Cash Reserves of AM4 was equal to its target level of EUR 74.3 million. As of November 2017, the Cash Reserves of AM5 was equal to its target level of EUR 66.3 million. As of November 2017, the Cash Reserves of AM7 was equal to its target level of EUR 63.5 million.

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

NatWest Markets is the Swap Counterparty to all five Atlantes Mortgage transactions. The language of the interest swap agreements envisaged by each transaction is considered not in compliance with the DBRS “Derivative Criteria for European Structured Finance Transactions” methodology. As such, no benefit was given to such hedging in DBRS’s analysis.

Notes:
All figures are in euros unless otherwise noted.

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

DBRS has applied the principal methodology consistently and conducted a review of the transaction 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.

Other methodologies referenced in the 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 “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf.

The sources of data and information used for the ratings include transaction manager reports provided by HSBC Bank plc for AM2, AM3, AM4 and AM5, investors reports provided by Deustche Bank AG, London Branch for AM7, and loan-by-loan level data from the European DataWarehouse GmbH.

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 8 February 2017, when DBRS confirmed its rating on the Class A Notes of AM2 at AA (low) (sf), and the ratings on the Class A Notes of AM3, AM4, AM5 and AM7 at AA (sf).

The lead analyst responsibilities for these transactions have been transferred to Ilaria Maschietto.

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 ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the ratings (the “Base Case”):

-- DBRS expected a Base Case PD and LGD for the portfolio 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.

-- For AM2, the Base Case PD and LGD of the pool of mortgages are 7.8% and 4.1%, respectively. At the AA (sf) rating level, the corresponding PD is 25.4% and the LGD is 13.1%.
-- For AM3, the Base Case PD and LGD of the pool of mortgages are 8.4% and 6.7%, respectively. At the AA (high) (sf) rating level, the corresponding PD is 29.3% and the LGD is 17.7%.
-- For AM4, the Base Case PD and LGD of the pool of mortgages are 8.1% and 6.4%, respectively. At the AA (high) (sf) rating level, the corresponding PD is 28.7% and the LGD is 15.8%.
-- For AM5, the Base Case PD and LGD of the pool of mortgages are 9.2% and 8.0%, respectively. At the AA (high) (sf) rating level, the corresponding PD is 31.3% and the LGD is 21.3%.
-- For AM7, the Base Case PD and LGD of the pool of mortgages are 10.7% and 12.7%, respectively. At the AA (high) (sf) rating level, the corresponding PD is 34.5% and the LGD is 27.9%.

-- 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 increased by 50%, the rating of the AM2 Class A Notes would be expected to remain at AA (sf), assuming no change in the PD. If the PD increased by 50%, the rating for the Class A Notes would be expected to be downgraded at BBB (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increased by 50%, the rating of the Class A Notes would be expected to be downgraded at BBB (high) (sf).

AM2:
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 (low) (sf).
-- 50% increase in PD, expected rating of BBB (high) (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf).

AM3:
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf).
-- 50% increase in LGD, expected rating of AA (high) (sf).
-- 25% increase in PD, expected rating of AA (high) (sf).
-- 50% increase in PD, expected rating of AA (high) (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf).

AM4:
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf).
-- 50% increase in LGD, expected rating of AA (high) (sf).
-- 25% increase in PD, expected rating of AA (high) (sf).
-- 50% increase in PD, expected rating of AA (high) (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf).

AM5:
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf).
-- 50% increase in LGD, expected rating of AA (high) (sf).
-- 25% increase in PD, expected rating of AA (high) (sf).
-- 50% increase in PD, expected rating of AA (high) (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf).

AM7:
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf).
-- 50% increase in LGD, expected rating of AA (high) (sf).
-- 25% increase in PD, expected rating of AA (high) (sf).
-- 50% increase in PD, expected rating of AA (high) (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (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 and US regulations only.

Lead Analyst: Ilaria Maschietto, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 17 May 2012

DBRS Ratings Limited
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London EC3M 3BY
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
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Operational Risk Assessment for European Structured Finance Servicers
-- Interest Rate Stresses for European Structured Finance Transactions
-- 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

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.