DBRS Assigns Final Ratings to Class A Notes Issued by GAMMA - STC, SA (ATLANTES SME No. 3)

DBRS Ratings Limited (“DBRS”) has today assigned a final rating of A (low) (sf) to the EUR 437.5 million Class A Asset Backed Floating Rate Notes (the “Class A Notes”) issued by GAMMA - Sociedade de Titularização de Créditos, S.A. (Atlantes SME No. 3) (the “Issuer”).

The Issuer is a limited liability company incorporated under the laws of Portugal. The transaction is a cash flow securitisation collateralised by a portfolio of Term Loans and Current Accounts originated by Banif-Banco Internacional do Funchal, S.A., (“BANIF” or the “Originator”) to Portuguese corporates, small and medium-sized enterprises (“SMEs”), and self-employed individuals.

The rating on the Class A Notes addresses the timely payment of interest and the ultimate payment of principal payable on or before the Final Maturity Date in December 2043. DBRS does not rate the Class B, Class C, Class D or Class S Notes, which together have an initial aggregate total par balance of EUR 487.20 million.

As of 31 December 2013, the transaction portfolio consisted of 10,364 Term Loans and Current Accounts extended to 10,039 borrowers and borrower groups, with an outstanding principal balance equal to EUR 875.0 million. As of this date, 98% of the portfolio was fully performing, while the remaining 2% was in arrears for no more than one instalment payment.

This is a static transaction. However, there is opportunity for loan substitutions if ineligible assets are discovered, or if Material Terms of the loans are amended by the Servicer. Such substitution of loans is confined by Substitution Criteria to preserve the integrity of the overall collateralised pool as of Closing Date.

At closing, only drawn parts of the Current Accounts will be securitised. Additional drawings on Current Accounts are permitted but confined by the limits established at the Closing Date and can only be included provided that the eligibility and substitution criteria are addressed. Mechanism of transferring only drawn part of the loan to the Issuer is permissible under the Portuguese Law and DBRS has run stressed case scenarios as part of its rating analysis.

Furthermore, portfolio amortisation proceeds can be trapped for the first 12 months from closing to fund further drawings of Current Accounts and if such proceeds are not sufficient then the Originator may increase the purchase of Class D Notes to fund further drawings. All of the above mentioned structural features have been addressed in the DBRS analysis.

The portfolio exhibits fairly high obligor concentration, with the top obligor and the largest ten obligor groups representing 3.74% and 21.52% of the initial portfolio balance, respectively. The region with the highest concentration is the North with 26% of the portfolio. The top three DBRS industries are “Building and Development” (36.78%), “Business Equipment and Services” (9.49%), and “Retailers (except food & drug)” (5.43%). The exposure to the Building and Development sector remains a source of concern considering the challenging economic situation in Portugal; however, this has been addressed in DBRS’s analysis by way of high correlation assumptions.

BANIF will act as the Servicer for the portfolio. Banco BPI S.A. will act as Back-up servicer from the Closing Date. At closing, the transaction is not expected to have a commingling reserve account, and the lack of this risk mitigant was factored into DBRS’s analysis of the transaction.

The rating of the Class A Notes is based upon DBRS’s review of the following items:

• The transaction structure, the form and sufficiency of available credit enhancement, the portfolio characteristics.
• The transaction parties’ financial strength and capabilities to perform their respective duties and the quality of origination, underwriting, and servicing practices.
• An assessment of the operational capabilities of key transaction participants. The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the approved terms. Interest and principal payments on the Class A Notes will be made quarterly.
• The soundness of the legal structure and the presence of legal opinions which address the true sale of the assets to the trust and the non-consolidation of the special purpose vehicle, as well as consistency with the DBRS “Legal Criteria for European Structured Finance Transactions”.
• The Cash Reserve Account provides additional credit enhancement for the Class A Notes which can be used to pay interest or principal shortfalls of the Class A Notes. The fees and expenses due will be paid prior to the replenishment of the Cash Reserve Account in the Priorities of Payments. It is funded at the beginning of the transaction through the issuance of the Class D Notes. The Cash Reserve Account can start to amortise from the second Interest Payment Date if certain conditions relating to the performance of the portfolio and deleveraging of the transaction are met. The Cash Reserve Account cannot amortise below EUR 6.563 million or 2.5% of the then-outstanding balance of the portfolio, whichever is greater, while the Class A Notes are outstanding.

The set-off risk in the transaction is mitigated by the issuance of the Class S Notes, which will be held by BANIF. Proceeds from the Class S Notes will be deposited by the Issuer with the Account Bank. Although the Class S Notes will initially be funded with cash, the documentation permits the purchase of an additional portfolio to back the Class S Notes, with the limitation that the additional portfolio notional will be 2.5 times more than the cash equivalent and this portfolio will be segregated from the securitised portfolio.

The sources of information used for these ratings include the parties involved in the rating, including but not limited to the Originator, the Issuer and its agents. DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

The principal methodology is “Rating CLOs Backed by Loans to European Small and Medium-Sized Enterprises (SMEs)” which can be found on our website 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 Securitisation in the EURO Area” at: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

DBRS determined the rating of the Class A Notes as follows, as per the principal methodology specified:
• The annualised probability of default (“PD”) for the originator was determined using the arrears data supplied. This was computed to be 8.57% per annum.
• The assumed weighted average life (“WAL”) of the portfolio was 3.0 years.
• The PD and WAL were used in the DBRS SME Diversity Model to generate the hurdle rate for the target rating.
• The recovery rate was determined by considering the market value declines (“MVDs”) for Portugal, the security level, and the type of collateral. Recovery rates of 64.57% and 16.25% were used for the secured and unsecured loans, respectively, at the A (low) (sf) rating level.
• The break-even rates for the interest rate stresses and default timings were determined using the DBRS Cash Flow Model.

Further information on DBRS’s analysis of this transaction will be available in a presale report on http://www.dbrs.com, or by contacting us at info@dbrs.com. Information regarding DBRS ratings, including definitions, policies and methodologies is available on http://www.dbrs.com.

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

This rating concerns a newly issued financial instrument. This is the first DBRS final rating on this financial instrument.

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”):
• Probability of Default Rates Used: Base Case PD of 8.57%, a 10% and 20% increase on the base case PD.
• Recovery Rates Used: Base Case Recovery Rate of at the stress level of 64.57% for secured loans and 16.25% for unsecured loans, a 10% and 20% decrease in the base case Recovery Rates at the relevant rating level. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery rate levels.

DBRS concludes that a hypothetical increase of the Base Case PD by 20% or a hypothetical decrease of the Base Case Recovery Rates by 20% would lead to a downgrade of the Class A Notes to BBB (high) (sf). Similarly, a scenario combining both an increase in the Base Case PD by 10% and a decrease in the Base Case Recovery Rates by 10% would lead to a downgrade of the Class A Notes to BBB (high) (sf).

It should be noted that the interest rates and other parameters that would normally vary with the rating level, including the recovery and interest rates, were allowed to change as per the DBRS methodologies and criteria.

For further information on DBRS’s historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository see:
http://cerep.esma.europa.eu/cerepweb/statistics/defaults.xhtml.

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

“Rating CLOs Backed by Loans to European Small and Medium Sized Enterprises (SMEs)”
“Legal Criteria for European Structured Finance Transactions”
“Unified Interest Rate Model for U.S. and European Structured Credit”
“Cash Flow Assumptions for Corporate Credit Securitizations”
“Rating Methodology for CLOs and CDOs of Large Corporate Credit”
“Operational Risk Assessment for European Structured Finance Servicers”
“Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda”

Initial Lead Analyst: Mudasar Chaudhry
Initial Rating Committee Chair: Simon Ross
Initial Rating Date: 4 February 2014

Provisional Rating Date: 16 January 2014

Note:
All figures are in Euros unless otherwise noted.