DBRS Confirms Rating of GAMMA - Sociedade de Titularização de Créditos, S.A. (Hipototta No. 13) and Removes the UR-Pos. Status

DBRS Ratings Limited (DBRS) confirmed its A (sf) rating on the Class A Notes issued by GAMMA - Sociedade de Titularização de Créditos, S.A. (Hipototta No. 13) (the Issuer).

The rating of the Class A Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date.

Additionally, DBRS removed the Under Review with Positive Implications (UR-Pos.) status of the Class A Notes of the transaction. The rating was placed UR-Pos. on 11 May 2018 following the upgrade of the Republic of Portugal’s (Portugal) Long-Term Foreign and Local Currency – Issuer Ratings to BBB from BBB (low). For more information, please see DBRS’s press release entitled “DBRS Upgrades Republic of Portugal to BBB, Stable Trend” published on 20 April 2018.

The confirmation follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults and losses as of the July 2018 payment date.
-- Updated probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables, reflecting the upgrade of the Portuguese sovereign rating.
-- Current available credit enhancement to the Class A Notes to cover the expected losses at their rating level.

Hipototta No. 13 is a securitisation of Portuguese residential mortgages originated and serviced by Banco Santander Totta S.A. (BST). The portfolio is serviced by BST, with Banco Santander S.A. (Banco Santander) acting as the back-up servicer facilitator.

PORTFOLIO PERFORMANCE
As of July 2018, one- to two-month arrears represented 0.05% of the outstanding portfolio balance, while two- to three-month arrears represented 0.02%. As of July 2018, no loans have defaulted.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 17.2% and 26.7% respectively.

CREDIT ENHANCEMENT
As of the July 2018 payment date, credit enhancement to the Class A Notes was 27.0%, up from 25.0% at the DBRS initial rating.

The transaction benefits from a Reserve Fund of EUR 62.3 million. It is available to pay senior fees and expenses, missed interest on the Class A Notes, and to clear the principal deficiency ledger of the Class A Notes.

Banco Santander Totta S.A. acts as the account bank for the transaction. Based on the DBRS public rating of Banco Santander Totta S.A. at “A” and the downgrade provisions outlined in the transaction documents, DBRS considers the risk arising from the exposure to the bank to be consistent with 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 to the rating 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 legal 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. 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 investor reports provided by Citibank N.A./London Branch, servicer reports provided by Banco Santander Totta S.A. and loan-level data provided by the European DataWarehouse GmbH.

DBRS did not rely upon third-party due diligence in order to conduct its analysis. At the time of the initial rating, DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS considers the data and information available to it for the purpose 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.

On 11 May 2018 the rating was placed UR-Pos., following Portugal’s Long-Term Foreign and Local Currency – Issuer Ratings being upgraded to BBB from BBB (low) on 20 April 2018. Prior to that, the last rating action on this transaction took place on 9 January 2018, when DBRS assigned an A (sf) rating to the Class A Notes.

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 with the parameters used to determine the rating (the “Base Case”):

-- DBRS expected a lifetime base case PD and 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 loans for the Issuer are 17.2% and 26.7%, respectively.
-- 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 A (low) (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to fall to BBB (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 fall to BB (high) (sf).

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

For further information on DBRS historic 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: Ilaria Maschietto, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 9 January 2018

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The rating methodologies 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
-- Interest Rate Stresses for European Structured Finance Transactions

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.