DBRS Assigns Rating to Hipototta No. 13 RMBS
RMBSDBRS Ratings Limited (DBRS) assigned a rating to the notes issued by GAMMA – Sociedade de Titularização de Créditos, S.A. (Hipototta No. 13, the Issuer), as follows:
-- Class A at A (sf).
The rating assigned to the Class A notes addresses the timely payment of interest to the noteholders on every quarterly payment date and the ultimate payment of principal by the legal final maturity date. DBRS does not rate the Class B or Class C notes.
Hipototta No. 13 is the latest securitisation of residential mortgages from Banco Santander Totta S.A. (BST, rated A (low) by DBRS). Based in Portugal, BST is a core operating subsidiary of Banco Santander S.A. (Critical Obligations Rating: A (high)). The assets are all originated by BST, who will continue to act as the mortgage portfolio servicer. Banco Santander S.A. will act as the back-up servicer facilitator.
The mortgage portfolio being securitised comprises 32,767 loans granted to 21,695 borrowers with an average outstanding balance of EUR 102,162 – aggregating to EUR 2.2 billion as of the Portfolio Cut-Off Date (27 November 2017). The mortgage portfolio has a weighted-average seasoning of 6.7 years, with 46% of the mortgage loans having originated between 2006 and 2009. The portfolio has an uncharacteristically high loan-to-value (LTV) ratio, with a weighted-average current LTV of 81.0%, indexed to 81.8% (using the Confidencial Imobiliário house price index to Q1 2017). The average current LTV for DBRS-rated Portuguese RMBS at time of initial rating is 72.3%, and portfolio seasoning is 4.1 years on average. None of the loans are in currently arrears or have been restructured, as per the eligibility criteria.
DBRS has applied a sovereign adjustment to the two-year probability of default (PD) in line with the BBB (low) rating assigned to the Republic of Portugal. A further adjustment was made to the two-year PD, as in DBRS’s opinion the sample size used for the agreed upon procedures is smaller than typically seen in comparable transactions.
Interest due on the Class A notes is linked to three-month EURIBOR, resetting quarterly, whereas the assets pay either a fixed rate of interest (5.0%) or a floating rate linked to either one, three, six or 12-month EURIBOR (0.01%, 40.8%, 21.9% and 32.2%, respectively). The floating-rate loans reset either every one, three, six or 12 months. This gives rise to interest rate risk and basis risk in the transaction that will remain unhedged. DBRS has modelled the mismatches using its “Interest Rate Stresses for European Structured Finance Transactions” methodology.
The transaction is structured to initially provide 25% of credit enhancement to the Class A notes. This includes subordination of the Class B notes (22% of the portfolio balance) as well as the amortising reserve fund, which is equal to 3% of the mortgage portfolio at issuance. Credit enhancement for the Class A notes is expected to accrue because of the fully sequential amortisation of the notes.
The reserve fund is available to provide liquidity (senior fees and Class A interest) as well as credit support, insofar as it is replenished in a position subordinated to the Class A principal deficiency sub-ledger payment. The reserve fund is initially funded by the proceeds of the Class C note issuance and is replenished to the higher of 3% of the outstanding Class A and B notes balance and 1.5% of the outstanding balance of the mortgages at closing. The reserve fund will not amortise if it was not replenished to the target amount on the preceding payment date.
Further liquidity support is provided by the ability to convert available principal funds into revenue funds, if a shortfall in making the senior fee and Class A interest payments exists after applying revenue collections and the reserve fund. These principal funds will not be recovered from excess spread. However, a principal deficiency ledger (PDL) is established at closing, comprising Class A and B sub-ledgers. The PDL will record as a debit balance, in reverse sequential order, 25% of the outstanding balance of mortgages that become at least nine (and less than 12) months delinquent during a payment period and subsequently 100% of the outstanding balance of the mortgages at least 12 months delinquent. Amounts credited to the PDL are done so through the revenue priority of payments and become available principal funds. Amounts recovered following enforcement of defaulted mortgages are classified as available principal funds, and hence flow through the principal priority of payments.
Monthly mortgage receipts are deposited into the collections account at BST. The funds credited to the collection account are transferred on the subsequent business day to the Issuer’s account held with BST. The transaction account agreement includes account bank rating triggers and downgrade provisions that lead DBRS to conclude that both account banks satisfy DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.
The transaction is structured with a commingling reserve trigger event whereby BST will deposit a cash amount into the reserve account if BST is downgraded below BBB (low). The amount is equal to the estimated collections amount, subject to a maximum amount of EUR 14 million. The Issuer will be available to use the funds as available revenue and/or principal funds if the servicer fails to transfer the collections.
Banco Santander S.A. (as the back-up servicer facilitator) is mandated to find a replacement servicer upon termination of the servicing agreement, within 30 days. Under the servicing agreement, they are also obliged (on a best effort basis) to find a back-up servicer if BST is downgraded below BBB (low), unless a replacement servicer has a rating above BBB (low).
In assessing the cash flows, DBRS has applied two default timing curves (front-ended and back-ended), its conditional prepayment rate (CPR) curves (low, medium and high) and interest rate stresses as per the DBRS “Interest Rate Stresses for European Structured Finance Transactions” methodology. DBRS applied an additional 0% CPR stress as a sensitivity. The cash flows were analysed using Intex DealMaker.
Notes:
All figures are in euros unless otherwise noted.
The principal methodology applicable to the rating is the “Master European Residential Mortgage-Backed Securities Rating Methodology” (20 December 2017).
DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.
Other methodologies referenced in this transaction are listed at the end of this press release.
These 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 “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf
The sources of data and information used for this rating include Banco Santander S.A. and Banco Santander Totta S.A.
DBRS did not rely upon third-party due diligence to conduct its analysis.
DBRS was supplied with one or more third-party assessments. DBRS applied additional credit stresses in its rating analysis.
DBRS considers the data and information available to it for the purposes of providing this rating to be of satisfactory quality.
DBRS does not audit or independently verify the data or information it receives in connection with the rating process.
This rating concerns a newly issued financial instrument.
Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.
The following scenarios constitute the parameters used to determine the ratings (the Base Case):
--In respect of the Class A notes, a Probability of Default (PD) and Loss Given Default (LGD) at the A (sf) stress scenario of 42.8% and 40.8%, respectively.
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.
DBRS concludes the following impact on the Class A notes:
-- A 25% increase of the PD, ceteris paribus would lead to a downgrade to BBB (high) (sf).
-- A 50% increase of the PD, ceteris paribus would lead to a downgrade to BBB (low) (sf).
-- A 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (high) (sf).
-- A 50% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (sf).
-- A 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (low) (sf).
-- A 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BB (high) (sf).
-- A 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BB (high) (sf).
-- A 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BB (sf).
For further information on DBRS historical default rates published by the European Securities and Markets Authority (“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 and US regulations only.
Lead Analyst: Lloyd Morrish-Thomas, Senior Financial Analyst, RMBS
Rating Committee Chair: Christian Aufsatz, Head of European Structured Finance.
Initial Rating Date: 9 January 2018
DBRS Ratings Limited
20 Fenchurch Street, 31st Floor, London EC3M 3BY United Kingdom
Registered in England and Wales: No. 7139960
The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies
Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (20 December 2017)
Legal Criteria for European Structured Finance Transactions (28 September 2017)
Interest Rate Stresses for European Structured Finance Transactions (18 December 2017)
Operational Risk Assessment for European Structured Finance Originators (12 October 2017)
Operational Risk Assessment for European Structured Finance Servicers (12 October 2017)
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
For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.
Ratings
ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.