DBRS Confirms Class A of Lusitano Mortgages No.7 Limited

DBRS Ratings Limited (“DBRS”) has reviewed Lusitano Mortgages No.7 Notes issued by Fundo de Titularização de Créditos (the “Issuer”) and confirms the rating of the Class A Notes at AA (high) (sf).

Lusitano Mortgages No.7 is a securitisation of first lien Portuguese residential mortgages (portfolio of EUR 1.9 billion at closing) originated and serviced by Banco Espirito Santo, S.A. The transaction closed in September 2008 and initially had a three year revolving period. The mortgage pool is well-seasoned (over seven years).

The confirmation of the rating for the Class A Notes is based upon the following analytical consideration, as described more fully below:

• Portfolio performance, in terms of level of delinquencies and defaults, as of the 22 April 2014 payment date.
• Updated Portfolio Defaults, Loss Given Defaults and Expected Losses for the remaining pool.
• Current available credit enhancement to the Class A Notes to cover the Expected Losses at the AA (high) (sf) rating level.

As of the 22 April 2014 payment date, the current less than 90 days delinquency ratio as a percentage of the current balance of the portfolio was 1.42% and the 90+ delinquency ratio was 1.55%. The gross cumulative default ratio (loans having more than 12 outstanding and unpaid monthly instalments) was 5.43% of the aggregated collateral balance.

Credit enhancement for the Class A Notes (as a percentage of the collateral balance) consists of subordination of the Class B and C Notes (29.65%), and a Cash Reserve Fund (0.15%). The Cash Reserve Fund has been initially funded via the issuance of the Class D Notes.

The transaction currently has a debit balance of EUR 24.8 million in the Principal Deficiency Ledger (PDL), as of the April 2014 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 the transaction 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 remains constant and is equal to the Cash Reserve Target amount of EUR 57 million.

Notes:
All figures are in EUR unless otherwise noted.

The principal methodology applicable is the Master European Structured Finance Surveillance Methodology. 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 Citibank N.A. (the Paying Agent) 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 04 March 2013, when DBRS confirmed the rating of AA (high) (sf) to Class A Notes.

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 receivables. 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 11.23% and 17.80%, respectively. The corresponding levels at the AA (high) (sf) rating level are 35.59% and 34.40%.
• 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 Class A Notes would be expected to remain at AA (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to remain at AA (high) (sf), assuming no change in the LGD. Furthermore, if both PD and LGD increase by 50%, the rating of the Class A Notes would be expected to remain at AA (high) (sf).

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

Lead Surveillance Analyst: Dylan Cissou
Rating Committee Chair: Erin Stafford

DBRS Ratings Limited
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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

• Legal 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