DBRS Confirms Ratings of Five Atlantes Mortgage Transactions

DBRS Ratings GmbH (DBRS) confirmed the following ratings of five Atlantes Mortgage transactions:

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

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

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

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

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

The ratings on the Class A Notes address timely payments of interest and ultimate payment of principal on or before the respective final maturity dates.

The rating actions follow an annual review of the transactions and are based on the following analytical considerations:

-- Portfolio performances, in terms of delinquencies and defaults, as of the latest payment date for each transaction;
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining collateral portfolios; and
-- Current available credit enhancement (CE) to the rated notes to cover the expected losses at their respective rating level.

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 as backup servicer.

PORTFOLIO PERFORMANCE
The portfolios are performing within DBRS’s expectations. In all transactions, loans with more than 90 days arrears have a downward trend. The 90+ delinquency ratio as of the latest payment dates stood at 0.6%, 0.4%, 1.0%, 1.2% and 0.4% of the outstanding collateral pool of AM2, AM3, AM4, AM5 and AM7, respectively. The cumulative default ratios were 5.1%, 4.8%, 3.7%, 4.2% and 5.6% of the original portfolio balance of AM2, AM3, AM4, AM5 and AM7, respectively.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the remaining collateral pools of receivables and updated its PD and LGD assumptions as follows:

-- For AM2, the base case PD and LGD are 6.1% and 3.0%, respectively;
-- For AM3, the base case PD and LGD are 6.8% and 5.4%, respectively;
-- For AM4, the base case PD and LGD are 6.9% and 9.7%, respectively;
-- For AM5, the base case PD and LGD are 7.4% and 6.5%, respectively; and
-- For AM7, the base case PD and LGD are 8.7% and 10.7%, respectively.

CREDIT ENHANCEMENT
The CE available to the rated notes is generally increasing as the transactions continue to deleverage. The CE consists of the overcollateralisation provided by the outstanding collateral portfolios and includes the cash reserve. As of the latest payment dates, CE levels were as follows:

-- For AM2, the CE to the Class A Notes was 26.9% as of the June 2019 payment date, increasing from 24.0% as of the June 2018 payment date;
-- For AM3, the CE to the Class A Notes was 35.0% as of the May 2019 payment date, unchanged from the May 2018 payment date;
-- For AM4, the CE to the Class A Notes was 38.0% as of the June 2019 payment date, increasing from 36.7% as of the June 2018 payment date;
-- For AM5, the CE to the Class A Notes was 44.4% as of the May 2019 payment date, increasing from 42.2% as of the May 2018 payment date; and
-- For AM7, the CE to the Class A Notes was 48.9% as of the May 2019 payment date, increasing from 48.1% as of the May 2018 payment date.

The AM2 cash reserve is available to pay senior fees and expenses, missed interest payments on the Class A Notes and to clear the Class A Notes principal deficiency ledger (PDL). It is also available to pay missed interest payments on the Class B and Class C Notes and to clear the Class B and Class C Notes PDLs. As of June 2019, the cash reserve was equal to EUR 16.0 million, below its target level of EUR 16.1 million.

The cash reserve of AM3, AM4, AM5 and AM7 is available to pay senior fees and expenses, missed interest payments on the Class A Notes and to clear the Class A Notes PDL. As of May 2019, the cash reserve of AM3 was equal to its target level of EUR 51.1 million. As of June 2019, the AM4 cash reserve was equal to its target level of EUR 69.4 million. As of May 2019, the AM5 cash reserve was equal to its target level of EUR 62.0 million. As of May 2019, the AM7 cash reserve was equal to its target level of EUR 57.2 million.

HSBC Bank plc is the Accounts Bank for all five Atlantes Mortgage transactions. Based on the private rating of the Accounts Bank, the downgrade provisions outlined in the transaction documents and structural mitigants, DBRS considers the risk arising from the exposure to the Accounts Banks to be consistent with the ratings assigned to the notes, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.

NatWest Markets is the Swap Counterparty for all five Atlantes Mortgage transactions. DBRS has given no credit to the swap transactions, as the swap documentation is not consistent with DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “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 the 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/333487/rating-sovereign-governments.pdf.

The sources of data and information used for the ratings include transaction manager reports provided by HSBC Bank plc for AM2, AM3, AM4 and AM5, investors report provided by Deutsche Bank AG, London Branch for AM7, and loan-level data from 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 analysis.

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

The last rating action on these transactions took place on 9 August 2018, when DBRS confirmed its rating of the Class A Notes of AM2 at AA (sf), and the ratings of the Class A Notes of AM3, AM4, AM5 and AM7 at AA (high) (sf).

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

To assess the impact of changing the transaction parameters on the ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the ratings (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.

-- For AM2, the base case PD and LGD of the mortgage pool are 6.1% and 3.0%, respectively. At the AA (sf) rating level, the corresponding PD and LGD are 22.5% and 11.6%, respectively.
-- For AM3, the base case PD and LGD of the mortgage pool are 6.8% and 5.4%, respectively. At the AA (high) (sf) rating level, the corresponding PD and LGD are 26.3% and 16.1%, respectively.
-- For AM4, the base case PD and LGD of the mortgage pool are 6.9% and 9.7%, respectively. At the AA (high) (sf) rating level, the corresponding PD and LGD are 26.5% and 19.7%, respectively.
-- For AM5, the base case PD and LGD of the mortgage pool are 7.4% and 6.5%, respectively. At the AA (high) (sf) rating level, the corresponding PD and LGD are 27.4% and 18.9%, respectively.
-- For AM7, the base case PD and LGD of the mortgage pool are 8.7% and 10.7%, respectively. At the AA (high) (sf) rating level, the corresponding PD and LGD are 30.1% and 25.5%, 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 A (sf), assuming no change in the PD. Furthermore, if both the PD and LGD increase by 50%, the rating of the AM2 Class A Notes would be expected to fall to A (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 (sf)
-- 50% increase in PD, expected rating of A (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 A (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (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 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 GmbH are subject to EU and US regulations only.

Lead Analyst: Ilaria Maschietto, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 17 May 2012

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main – Deutschland

Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- Derivative Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Operational Risk Assessment for European Structured Finance Servicers

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.