DBRS Confirms the Ratings to Castilho Mortgages No. 1

DBRS Ratings Limited (“DBRS”) has reviewed Castilho Mortgages No. 1 (the “Issuer”) and has confirmed the ratings of the Class A Notes at A (high) (sf).

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 delinquencies and defaults, as of the July 2014 payment date.
• Updated portfolio default rate, loss given default and expected loss assumptions for the remaining collateral pool.
• Incorporation of a sovereign related stress component in the rating analysis to address the impact of macroeconomic variables on collateral performance given the long-term foreign currency and long-term local currency rating of BBB (low), respectively, for the Republic of Portugal.
• Current available credit enhancement to the Class A Notes to cover the expected losses at the A (high) (sf) rating level.

Castilho Mortgages No. 1 is a securitisation of first ranking Portuguese residential mortgage loans originated and serviced by Deutsche Bank AG, Portugal Branch (“DBAG”). The assets supporting the notes are mortgage loans secured by residential properties located in Portugal. The deal follows the standard structure under the Portuguese Securitisation Law and closed in September 2013.

The transaction has a three-year revolving period which will terminate in September 2016. There are purchase termination triggers to mitigate the potential portfolio performance deterioration. All have been passing to date.

As of the July 2014 payment date, the cumulative default ratio (as a percentage of the original balance) was zero. The 90+ delinquency ratio attained low levels and reached 0.18% on the last reporting date.

The Class A Notes are supported by subordination of the Class B Notes and a fully funded amortising cash reserve equal to 3.53% of the Class A Notes. Credit enhancement for the Class A Notes (as a percentage of the performing portfolio) has been stable at 18%, but the transaction is still in the revolving period.

The cash reserve is available to meet any shortfalls on payment of senior fees and interest on the Class A Notes as well as for recovery of principal losses debited to the Class A Principal Deficiency Ledger. The cash reserve will amortise if certain conditions are met, subject to the absolute floor of EUR 13.33 million. The cash reserve is currently at the target level of EUR 39.98 million.

DBAG is the Account Bank for this transaction. The DBRS private rating of DBAG 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.

Notes:
All figures are in Euro 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 Deutsche Bank AG, London branch and data from DBAG. 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 September 2013, when DBRS assigned the ratings of A (high) (sf) to the 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 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 12.32% and 27.41%, respectively. At the A (high) (sf) rating level, the corresponding PD is 31.12% and the LGD is 39.51%.
• 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 fall to BBB (high) (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 BB (sf).

Class A Notes Risk Sensitivity:
• 25% increase in LGD, expected rating of A (sf)
• 50% increase in LGD, expected rating of BBB (high) (sf)
• 25% increase in PD, expected rating of A (low) (sf)
• 50% increase in PD, expected rating of BBB (high) (sf)
• 25% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
• 25% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)
• 50% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf)
• 50% increase in PD and 50% increase in LGD, expected rating of BB (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: 26 September 2013
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Elisa Scalco
Rating Committee Chair: Mary Jane Potthoff

DBRS Ratings Limited
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London
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United Kingdom

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
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