DBRS Confirms Rating on Atlantes Mortgage No. 4

DBRS Ratings Limited (DBRS) has today confirmed its rating of the Class A notes of Atlantes Mortgage No. 4 at AA (sf).

The confirmation of the ratings of 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 30 November 2015.
-- 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 and local currency rating of BBB (low) for the Republic of Portugal.
-- Current available credit enhancement to the Class A notes to cover the expected losses at the AA (sf) rating level.

Atlantes Mortgages No. 4 is a securitisation of Portuguese residential mortgage loans originated by Banco Internacional do Funchal S.A. (Banif). On 20 December 2015, the contractual position of Banif in this transaction has been transferred to Banco Santander Totta, S.A. following the resolution measure applied to Banif and the consequent acquisition by Banco Santander Totta, S.A. of a set of rights and obligations of Banif. Banif has confirmed that there has not been any disruption on servicing activity. DBRS will continue to closely monitor the evolution of this contractual position transfer and any potential impact on the transaction.

The current 90+ delinquency ratio as a percentage of the performing balance of the portfolio has slightly increased to 1.31% in November 2015, up from 0.9% in November 2014. The cumulative default ratio (as a percentage of the original balance) increased over the year and reached 3.12% in November 2015, within DBRS’s initial expectations.

Credit enhancement to the Class A notes is provided by subordination of the Class B notes and a Reserve Fund. Credit enhancement to the Class A notes as a percentage of the performing balance of the portfolio increased to 28.59% in December 2015 payment date.

The transaction benefits from a Reserve Fund available to cover losses and interest shortfalls to the Class A notes. The Reserve Fund is allowed to amortise if certain conditions defined in the legal documentation are met. As of December 2015 payment date, the Reserve Fund stands at the target level of EUR 74.25 million.

HSBC Bank plc is the Treasury Account Bank for the transaction. The DBRS private rating of HSBC Bank plc is above the Minimum Institution Rating given the rating assigned to the Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

The transaction envisages an interest rate swap agreement. As the language of the hedging agreement is not in line with DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology, no benefit was given to such hedging in DBRS’s analysis.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is the “Master European Structured Finance Surveillance Methodology”.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology. A review of the transaction legal documents was not conducted as the documents have remained unchanged since the most recent rating action

Other methodologies referenced in this transaction are listed at the end of this press release.

This may be found on www.dbrs.com at:
http://www.dbrs.com/about/methodologies

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to DBRS’s “The Effect of Sovereign Risk on Securitisations in the Euro Area” commentary on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

The sources of information used for this rating include information provided by HSBC Bank plc and data from the European DataWarehouse GmbH.

DBRS does not rely upon third-party due diligence in order to conduct its analysis; DBRS was not supplied with third-party assessments; however, this did not impact the rating analysis.

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 9 February 2015, when DBRS confirmed the rating on the Class A notes at AA (sf).

The lead responsibilities for this transaction have been transferred to Antonio Di Marco.

Information regarding DBRS ratings, including definitions, policies and methodologies is available at www.dbrs.com.

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):
-- 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 10.09% and 13.52%, respectively. At the AA (sf) rating level, the corresponding PD is 30.04% and the LGD is 25.14%.
-- 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 remain at AA (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A notes would be expected to remain at AA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A notes would be expected to remain at AA (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)

For further information on DBRS historic default rates published by the European Securities and Markets Administration 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: 17 May 2012
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Antonio Di Marco
Rating Committee Chair: Quincy Tang

DBRS Ratings Limited
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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 (September 2015)
-- Master European Structured Finance Surveillance Methodology (December 2015)
-- Operational Risk Assessment for European Structured Finance Servicers (December 2015)
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (January 2016)
-- Unified Interest Rate Model for European Securitisations (October 2015)
-- Derivative Criteria for European Structured Finance Transactions (September 2015)

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.