DBRS Confirms Ratings of Five Atlantes Mortgage Transactions and Removes the UR-Pos. Status

DBRS Ratings Limited (DBRS) confirmed its ratings of five Atlantes Mortgage transactions:

Atlantes Mortgage N º 2 (AM2):
-- Class A Notes confirmed at AA (sf)

Atlantes Mortgage N º 3 (AM3):
-- Class A Notes confirmed at AA (high) (sf)

Atlantes Mortgage N º 4 (AM4):
-- Class A Notes confirmed at AA (high) (sf)

Atlantes Mortgage N º 5 (AM5):
-- Class A Notes confirmed at AA (high) (sf)

Atlantes Mortgage N º 7 (AM7):
-- Class A Notes confirmed at AA (high) (sf)

The ratings address the timely payment of interest and ultimate payment of principal on or before the relevant legal final maturity date.

DBRS removed the Under Review with Positive Implications (UR-Pos.) status on the Class A Notes from the five transactions. The ratings were 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 on the upgrade, please see DBRS’s press release entitled “DBRS Upgrades Republic of Portugal to BBB, Stable Trend” published on 20 April 2018.

The confirmations follow an annual review of the transactions and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults and losses as of the latest payment date for each transaction.
-- Updated probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables of each collateral portfolios, reflecting the upgrade of the Portuguese sovereign rating.
-- Current available credit enhancement to the notes to cover the expected losses at their respective rating levels.

The transactions are securitisations of Portuguese residential mortgage loans originated by Banco Internacional do Funchal S.A. (Banif). In December 2015, following the resolution measure applied to Banif, Banco Santander Totta S.A. (Santander Totta) acquired some of the specific assets and liabilities of the bank without any interruption on servicing activity. Santander Totta currently services the portfolios. Banco BPI S.A. was appointed backup servicer.

PORTFOLIO PERFORMANCE
As of each latest payment date of each transaction, the 90+ delinquency ratios were 1.2%, 1.7%, 1.5%, 1.4% and 0.2% for AM2, AM3, AM4, AM5 and AM7, respectively. The cumulative default ratios were 4.9%, 4.3%, 3.4%, 4.0% and 5.5% for AM2, AM3, AM4, AM5 and AM7, respectively.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis of the remaining pools of receivables and updated its base case PD and LGD assumptions:
-- For AM2, the base-case PD and LGD are 7.1% and 3.7%, respectively;
-- For AM3, the base-case PD and LGD are 7.8% and 6.1%, respectively;
-- For AM4, the base-case PD and LGD are 7.5% and 6.0%, respectively;
-- For AM5, the base-case PD and LGD are 8.5% and 7.5%, respectively; and
-- For AM7, the base-case PD and LGD are 9.7% and 12.1%, respectively.

CREDIT ENHANCEMENT
Credit enhancements to the Class A Notes consist of overcollateralisation provided by the outstanding collateral portfolios and include the cash reserves. As of the latest payment date of each transaction, credit enhancements to the Class A Notes were 24.0%, 35.0%, 36.7%, 42.2% and 48.1% for AM2, AM3, AM4, AM5 and AM7, respectively.

The cash reserves in each transaction are available to pay senior fees and expenses, missed interest on the Class A Notes, and clear the principal deficiency ledger (PDL) of Class A Notes. The cash reserve of AM2 is also available to pay missed interest on the Class B and Class C notes and clear the PDL of Class B and Class C notes, which are not rated by DBRS. As of June 2018, the cash reserve of AM2 was at EUR 15.5 million, below its target level of EUR 16.1 million.

However, the cash reserves for the other four transactions were at their target levels as of the last payment date. As of May 2018, the cash reserve of AM3 was at its target level of EUR 57.7 million. As of June 2018, the cash reserve of AM4 was at its target level of EUR 74.3 million. As of May 2018, the cash reserve of AM5 was at its target level of EUR 66.3 million. As of May 2018, the cash reserve of AM7 was at its target level of EUR 63.5 million.

Following the Portugal upgrade, to assess an hypothetical upgrade to AAA (sf) on the Class A Notes of AM3, AM4, AM5 and AM7, DBRS considered additional stresses to account for a potential currency depreciation and capital controls in the unlikely scenario of a Portuguese eurozone exit and concluded that the current level of credit enhancements as well as the liquidity mitigants present in each deal would not be sufficient, at that AAA (sf) rating level scenario, to mitigate the country risk given the current Long-Term Issuer Rating of Portugal at BBB.

HSBC Bank plc acts as the account bank for all five Atlantes Mortgage transactions. The DBRS private rating of HSBC Bank plc is consistent with the Minimum Institution Rating, given the rating assigned to the Class A Notes of each transaction, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.

NatWest Markets acts as the swap counterparty for all five Atlantes Mortgage transactions. The interest swap agreements in each transaction are considered not fully in compliance with the DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology. As such, no benefit was given to such hedging in DBRS’s analysis.

Notes:
All figures are in euros unless otherwise noted.

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

DBRS has applied the principal methodology consistently and conducted a review of the transactions in accordance with the principal methodology.

A review of the transactions legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

Other methodologies referenced in these transactions 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 these ratings include transaction manager reports provided by HSBC Bank plc for AM2, AM3, AM4 and AM5, investor reports provided by Deustche Bank AG, London Branch for AM7, and loan-level data provided by the European DataWarehouse GmbH.

DBRS did not rely upon third-party due diligence in order to conduct its analyses.

At the time of the initial ratings, DBRS was not supplied with third-party assessments. However, this did not impact the rating analyses for none of the five transactions.

DBRS considers the data and information available to it for the purpose of providing these ratings 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 ratings on the Class A Notes of the five transactions were placed UR-Pos., following Portugal 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 actions on these transactions took place on 5 February 2018, when DBRS upgraded its rating on the Class A Notes of AM2 to AA (sf) from AA (low) (sf), and the ratings on the Class A Notes of AM3, AM4, AM5 and AM7 to AA (high) from AA (sf).

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 pools 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.

-- For AM2, the base case PD and LGD of the current pool of loans for the Issuer are 7.1% and 3.7%, respectively.
-- For AM3, the base case PD and LGD of the current pool of loans for the Issuer are 7.8% and 6.1%, respectively.
-- For AM4, the base case PD and LGD of the current pool of loans for the Issuer are 7.5% and 6.0%, respectively.
-- For AM5, the base case PD and LGD of the current pool of loans for the Issuer are 8.5% and 7.5%, respectively.
-- For AM7, the base case PD and LGD of the current pool of loans for the Issuer are 9.7% and 12.1%, 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 AM2 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 of the AM2 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 AM2 Class A Notes would be expected to fall to BBB (high) (sf).

AM2:
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 (low) (sf)
-- 50% increase in PD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)

AM3:
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)

AM4:
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)

AM5:
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)

AM7:
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 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: 17 May 2012

DBRS Ratings Limited
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31st Floor
London
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Registered in England and Wales:
No. 7139960.

The rating methodologies used in the analyses of these transactions 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
-- Derivative Criteria 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.