DBRS Assigns Final Ratings to Notes Issued by GAMMA - STC, SA (ATLANTES SME No. 4)

DBRS Ratings Limited (“DBRS”) has today assigned the following final ratings to the Class A and Class B Notes (the “Notes”) issued by GAMMA - Sociedade de Titularização de Créditos, S.A. (Atlantes SME No. 4) (the “Issuer”):

EUR 465.0 million Class A Asset-Backed Floating Rate Notes due 2043: A (low) (sf)
EUR 55.0 million Class B Asset-Backed Floating Rate Notes due 2043: BBB (low) (sf)

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”) 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 Legal Maturity Date in December 2043. The rating on the Class B Notes addresses the ultimate payment of interest and the ultimate payment of principal payable on or before the Final Legal Maturity Date in December 2043.

As of 31 July 2014, the transaction portfolio consisted of 7,766 Term Loans and Current Accounts extended to 7,045 borrowers and borrower groups, with an outstanding principal balance equal to EUR 875.0 million. As of that date, 94.3% of the portfolio was fully performing, while the remaining 5.7% was in arrears for no more than one instalment.

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 the 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. The 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, the portfolio amortisation proceeds can be trapped for the first two years to fund further drawings of Current Accounts and if such proceeds are not sufficient the Originator has the option to issue further Class D Notes to fund those drawings.

The portfolio exhibits high obligor concentration, with the top obligor group and the largest ten obligor groups representing 2.5% and 15.6% of the initial portfolio balance, respectively. The portfolio is concentrated in the northern region of Portugal, Azores, and Madeira, representing 32.2%, 22.4%, and 15.7% of the portfolio notional, respectively.

Based on DBRS industry definitions, the portfolio is also highly concentrated in the “Building and Development” sector, representing 31.6% of the portfolio balance. 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.

The Class A Notes and Class B Notes benefit from a credit enhancement in the form of subordination (including the benefit provided by the Cash Reserve Account) of 48.2% and 41.9% respectively, which DBRS considers to be sufficient to support the ratings. The transaction benefits from Principal Deficiency Ledgers (“PDLs”), which will trap excess spread once defaults in the loan portfolio are recognised. In addition, an acceleration event is triggered once the gross cumulative default ratio goes above 20% of the portfolio balance. The acceleration event will force the distribution of proceeds under the post-enforcement waterfall which further benefits the Class A Notes.

These ratings are 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 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 is available to cover any shortfalls in the senior fees and interest on the Class A Notes and to the Class B Notes once the Class A Notes have paid-in-full. 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 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.

All DBRS methodologies 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 Securitisation in the EURO Area” at: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

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 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.

DBRS determined these ratings as follows, as per the principal methodology specified below:
• The annualised probability of default (“PD”) for the originator was determined using the historical performance data supplied. This was computed to be 10.93% per annum.
• The assumed weighted average life (“WAL”) of the portfolio was 3.8 years.
• The PD and WAL were used in the DBRS SME Diversity Model to generate the hurdle rate for the target ratings.
• The recovery rate was determined by considering the market value declines (“MVDs”) for Portugal, the security level, and the type of collateral. For the Class A Notes, DBRS applied the following recovery rates: 72.0% for secured loans and 16.25% for unsecured loans. For the Class B Notes, DBRS applied the following recovery rates: 77.7% for secured loans and 17.0% for unsecured loans.
• 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 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 10.93%, a 10% and 20% increase on the base case PD.
• Recovery Rates Used: Base Case Recovery Rate of 34% at the A (low) (sf) stress level and 36.3% at the BBB (low) (sf) stress level for the Class A Notes and Class B notes respectively, a 10% and 20% decrease in the base case Recovery Rates at the relevant rating level.

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

Regarding the Class B Notes, a hypothetical increase of the base case PD by 20% or a hypothetical decrease of the Recovery Rates by 20%, ceteris paribus, would each lead to a downgrade of the Class B Notes to BB (high) (sf). A scenario combining both an increase in the PD by 10% and a decrease in the Recovery Rates by 10% would lead to a downgrade of the Class B Notes to BB (high) (sf).

It should be noted that the interest rates and other parameters that would normally vary with rating level, including the recovery 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.

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

“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: Jerry van Koolbergen
Initial Rating Date: 9 September 2014

Note:
All figures are in Euros unless otherwise noted.