DBRS Confirms Ratings to Azor Mortgages No.2

DBRS Ratings Limited (“DBRS”) has reviewed GAMMA – Sociedade de Titularização de Créditos, S.A. Azor Mortgages No. 2 (the “Issuer”) and confirmed the ratings of the Class A Notes at A (high) (sf).

GAMMA – Sociedade de Titularização de Créditos, S.A. Azor Mortgages No. 2 is a securitisation of Portuguese residential mortgage loans originated by Banif – Banco Internacional do Funchal, S.A. (“Banif”). The assets supporting the notes are first ranking loans over residential properties located in Portugal. The transaction follows the Sociedade de Titularização de Créditos (STC) arrangement under the Portuguese Securitisation Law and closed in July 2008.

Confirmation of the ratings for the Class A Notes is based upon the following analytical considerations, as described more fully below:

• Portfolio performance, in terms of defaults and level of delinquencies, as of the January 2014 payment date.
• Updated Portfolio Default Rate, Loss Given Default and Expected Loss for the remaining collateral pool.
• Current available credit enhancement to the rated notes to cover the expected losses at the A (high) (sf) rating level.

As of the January 2014 payment date, the current 90+ delinquency ratio as a percentage of the performing balance of the portfolio was 0.98%. This ratio has declined steadily from a peak of 2.40% in October 2012. The current cumulative default ratio as a percentage of the original balance is 0.91%.

Credit enhancement for the Class A Notes is provided by the subordination of the Class B Notes and an amortising Cash Reserve (currently equal to 3.22% of the aggregate outstanding balance of the Class A and Class B Notes) funded at transaction close. The current credit enhancement for the Class A Notes is 24.00% and has increased from 17.75% since transaction close. The balance of the Cash Reserve is EUR 6.75 million which is at the initial and current target level.

HSBC Bank plc is the Account Bank for this transaction. The DBRS private rating of HSBC Bank plc is at least equal to the Minimum Institution Rating given the rating assigned to the Class A Notes, as described in the DBRS Legal Criteria for European Structured Finance Transactions. Additionally, The Royal Bank of Scotland, London branch is the swap counterparty for this transaction. The swap documentation contains rating triggers related to collateralisation, replacement or the inclusion of an appropriately rated guarantor if breached consistent with the DBRS Derivative Criteria for European Structured Finance Transactions.

Notes:
All figures are in Euro unless otherwise noted.
The principal methodology applicable is the Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

This can be found on www.dbrs.com at:
http://www.dbrs.com/about/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” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include investor reports provided by HSBC Bank plc and data from the European DataWarehouse. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

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 last rating action on this transaction took place on 26 February 2013, when DBRS confirmed the ratings to Class A Notes at A (high) (sf).

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

To assess the impact of the 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 Loss Given Default (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 current pool of mortgages for the Issuer are 14.88% and 22.89%, respectively. At the A (high) (sf) rating level, the corresponding PD is 35.62% and the LGD is 38.99%.
• 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 lower to ‘A’ (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A Notes would be expected to fall to BBB (high) (sf), assuming no change in the LGD. Furthermore, if both PD and LGD increase by 50%, the rating would be expected to fall to BBB (low) (sf).

Class A Notes Risk Sensitivity:
• 25% increase in LGD, expected rating of A (high) (sf)
• 50% increase in LGD, expected rating of ‘A’ (sf)
• 25% increase in PD, expected rating of A (high) (sf)
• 50% increase in PD, expected rating of BBB (high) (sf)
• 25% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
• 25% increase in PD and 50% increase in LGD, expected rating of BBB (sf)
• 50% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
• 50% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf)

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“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.

Initial Lead Analyst: Alastair Bigley
Initial Rating Date: 8 July 2011
Initial Rating Committee Chair: Claire Mezzanotte

Last Rating Date: 26 February 2013

Lead Surveillance Analyst: Elisa Scalco
Rating Committee Chair: Claire Mezzanotte

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

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

Legal Criteria for European Structured Finance Transactions
Derivative 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