Press Release

DBRS Confirms Rating on Lusitano Mortgages No. 7 Limited

RMBS
May 11, 2016

DBRS Ratings Limited (DBRS) has today confirmed its rating on the Class A Notes issued by Lusitano Mortgages No. 7 Limited (the Issuer) at AA (high) (sf).

The confirmation of the rating on the Class A Notes is based on the following analytical considerations as described more fully below:

-- Portfolio performance, in terms of delinquencies and defaults, as of April 2016.
-- Updated portfolio default rate, loss given default and expected loss assumptions for the remaining collateral pool.
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the AA (high) (sf) rating level.

Lusitano Mortgages No. 7 Limited is a securitisation of first lien Portuguese residential mortgage loans originated and serviced by Novo Banco, S.A.

As of April 2016, the 90+ delinquency ratio is at 1.06%, while the 180+ delinquency ratio is at 0.45%. The current cumulative default rate is currently at 6.97%. Defaulted loans are defined as those in which 12 or more monthly instalments have not been paid.

As of the April 2016 payment date, credit enhancement to the Class A Notes stands at 29.23%, up from 27.44% in April 2015. Credit enhancement to the Class A Notes consists of subordination of the Class B and Class C Notes.

The transaction benefits from a Cash Reserve Fund that is available to cover senior fees and any interest shortfall on the Class A and Class B Notes. The Cash Reserve is currently at its target level of EUR 57 million.

As of April 2016, the Principal Deficiency Ledger (PDL) has a debit balance of EUR 34,612,680. Principal losses are recorded on the PDL as follows: 30% on the date that the mortgage asset is written off, 30% one year after the date of write-off and 40% two years after the date of write-off. The Cash Reserve Fund is not available to reduce the debit balance on the PDL.

Citibank N.A., London Branch acts as the account bank for the transaction. The DBRS private rating of Citibank N.A., London Branch complies with 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.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is the Master European Structured Finance Surveillance Methodology, which can be found on www.dbrs.com at http://www.dbrs.com/about/methodologies. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

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

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’s legal documents was not conducted as the documents have remained unchanged since the most recent rating action.

The sources of information used for this rating include investor reports provided by Citibank N.A., London Branch and data from European Data Warehouse 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 purpose 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 11 May 2015 when DBRS confirmed the rating of AA (high) (sf) on the Class A Notes. The lead responsibilities for this transaction have been transferred to Andrew Lynch.

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

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared with 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 7.91% and 13.77%, respectively. At the AA (high) (sf) rating level, the corresponding PD is 28.61% and the LGD is 30.05%.
-- 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 (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 remain at AA (high) (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 (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 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: Andrew Lynch, Senior Financial Analyst
Rating Committee Chair: Diana Turner, Senior Vice President

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 (February 2016)
-- Master European Structured Finance Surveillance Methodology (April 2016)
-- 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)

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.

Ratings

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  • CA = Lead Analyst based in Canada
  • EU = Lead Analyst based in EU
  • UK = Lead Analyst based in UK
  • E = EU endorsed
  • U = UK endorsed
  • Unsolicited Participating With Access
  • Unsolicited Participating Without Access
  • Unsolicited Non-participating

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