DBRS Confirms Rating on Lusitano Mortgages No. 7

DBRS Ratings Limited (“DBRS”) has confirmed the Class A Notes of Lusitano Mortgages No.7 at AA (high) (sf) and removed the rating from Under Review with Negative Implications. The rating was previously left Under Review with Negative Implications following an update to the DBRS Master European Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda due to performance issues of the underlying mortgage receivables.

The confirmation follows a review of the current portfolio of mortgage receivables and transaction structure. The analysis of the mortgage receivables incorporates a sovereign related stress component to address the impact of macroeconomic variables on collateral performance.

The transaction currently has a debit balance of €8.8 million in the Principal Deficiency Ledger (PDL), as of the January 2013 Interest Payment Date (IPD). The PDL is debited as principal losses are realised on the receivables. Principal losses are recorded in the PDL as losses accrue after a loan reaches later stages of delinquency (30% after 12 months delinquency, 30% after a further 12 months and 40% after that). Amounts standing in the Cash Reserve Account for Lusitano 7 are not available to pay down debits in the PDL. As such the PDL debit balance has not been reduced to zero while the Cash Reserve Account is equal to the Cash Reserve Target amount of €57.0 million. DBRS expects the debit balance to be reduced over the upcoming IPDs as €53.7 million of the €58.4 million of loans greater than 12 months delinquent have been provisioned for through the principal loss mechanism. Additionally, 90-360 day delinquent loans have declined from 2.50% to 2.17% of the loan pool since the last IPD after increasing from 1.18% to 2.50% between January 2011 and October 2012. Although the one period change is not a long term trend, it is expected that the near term leveling off of 90-360 day delinquent loans will decrease new loans rolling into 360 days delinquent. DBRS will continue to monitor the delinquency data and any effects the trend may have on the credit enhancement for the Class A Notes.

Citibank, N.A. is the Accounts Bank for the transaction. Citibank, N.A. meets the minimum institution rating necessary for the highest rated security to be rated AA (high) (sf) in accordance with the DBRS Legal Criteria for European Structured Finance Transactions.

Notes:
All figures are in euros unless otherwise noted.

The principal methodologies applicable are:
• Master European Residential Mortgage-Backed Securities Rating Methodology
• Legal Criteria for European Structured Finance Transactions
• Swap Criteria for European Structured Finance Transactions
• Operational Risk Assessment for European Structured Finance Servicers
• Unified Interest Rate Model Methodology for European Securitisations
• Master European Structured Finance Surveillance Methodology

These can be found on dbrs.com under Methodologies. For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area”.

The sources of information used for this rating include an updated loan tape provided as of 31 December 2012 and investor reports, both provided by BES. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

For additional information on this rating, please see the linking document.

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

Initial Lead Analyst: Richard Hewitt
Rating Committee Chair: Claire Mezzanotte
Initial Rating Date: 28 February 2011

Lead Surveillance Analyst: Keith Gorman
Most Recent Rating Date: 2 January 2013
Rating Committee Chair: Erin Stafford