DBRS Ratings Limited Assigns Ratings to GAMMA - Sociedade de Titularização de Créditos, S.A.

DBRS Ratings Limited (DBRS) has assigned a A (high) (sf) rating to the Class A Mortgage Backed Floating Rate Notes note issued by GAMMA - Sociedade de Titularização de Créditos, S.A. (Azor 2). The transaction is backed by residential mortgages secured on collateral in the Republic of Portugal and originated by Banco Banif e Comercial dos Acores, S.A . (Banif). The transaction originally closed in July 2008. The total collateral balance as at the time of DBRS issuing its rating is €245,324,894.45. The DBRS rated Class A note is €197,465,168.52

GAMMA - Sociedade de Titularização de Créditos, S.A. (Azor 2) has two classes of mortgage backed floating rate notes. The Class A is the most senior note in the structure and is supported by the Class B note and a cash reserve fund on €6.75m. DBRS rates Class A only, which has 21.83% of credit support provided by the subordination and a cash reserve fund.

The ratings are based upon DBRS review of the following analytical considerations:
•Transaction capital structure and form and sufficiency of available credit enhancement.
•The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to terms in which they have invested.
•The transaction parties’ capabilities with respect to originations, underwriting, servicing, and financial strength.
•The credit quality of the collateral and ability of the servicers to perform collection activities on the collateral
•The legal structure and presence of legal opinions addressing the assignment of the assets to the issuer and the consistency with the DBRS Legal Criteria for European Structured Finance Transactions.

The transaction does not have a revolving period but does all for the substitution of assets in case of breach or representation and also allows Banif to make permitted variations to mortgages subject to limitations contained within the transaction documents.

The transaction currently pays principal sequentially, meaning that the Class A note is currently being paid in priority of the Class B note. However, the transaction has the ability to switch to pro-rata amortisation after 3 years from the initial close of the transaction, subject to performance conditions. DBBRS expects that the transaction will switch to pro-rata amortization in 2011. Furthermore, if cumulative defaults exceed 20%, the transaction will switch to the post enforcement waterfall which diverts all cash to the Class A principal before Class B interest is paid. There is also a provisioning mechanism which records a pre-defined loss to the Principal Deficiency Ledger (PDL) when loans are 12, 24 and 36 months in arrears. This mechanism allows for excess spread, if available, to cover losses without having to wait for the repossession proceeds to crystallise.

The transaction is geographically concentrated in the Azores Islands which is a part of Portugal. DBRS applied additional stresses in its analysis to account for the extra risk posed by this concentration and the associated sovereign risk.
Interest and principal payments on the notes will be made quarterly on the 21st day January, April, July and October. The first payment date following the issuance of the DBRS rating will be on the 21st July 2011. The legal final maturity date is 14th December 2065.

Principal losses, and deemed principal losses under the provisioning mechanism detailed above, will be recorded by debiting the Principal Deficiency Ledger by an amount equal to any Deemed Principal Loss on each Payment Date as defined in the prospectus. Any interest remaining after paying Class A interest amount will be used to credit the Principal Deficiency Ledger until its balance is reduced to zero.

The transaction has an interest rate swap to hedge the mismatch resultant from the reset frequency between the interest rate indices received on the notes and paid on the liabilities. The hedge receives three month Euribor in exchange for the various interest rates paid on the mortgages. The transcation also contains an interest rate cap agreement with HSBC Bank plc whereby the issuer can receive an amount if positive equal to: three month Euribor minus 9% until 20 October 2011; and three month Euribor minus 10% until 20 October 2012 on a notional equal to 20% of the initial note balance. DBRS has applied its standard interest rate stresses in accordance with the Unified Interest Rate Model Methodology for European Securitisations.

DBRS conducted a loan-level credit analysis and cash flow analysis, as well as an analysis of historical performance data from GAMMA - Sociedade de Titularização de Créditos, S.A. (Azor 2) dating back to 1995.

Note:
All figures are in Euros unless otherwise noted.

The applicable methodologies are the Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisidtional Addenda and Legal Criteria for European Structured Finance Transactions, which can be found on our website under Methodologies with adjustments made for the Portuguese mortgages and the originator- and servicer-specific historical performance.

The sources of information used for this rating include data relating to the underlying mortgages provided by Banif – Banco Internacional do Funchal, S.A. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This is the first DBRS rating on this financial instrument.

For additional information on DBRS European RMBS ratings, please refer to the linking document located below.

Lead Analyst: Alastair Bigley
Rating Committee Chair: Claire Mezzanotte
Initial Rating Date: 4th July 2011