DBRS Morningstar Confirms Ratings of Five Atlantes Mortgage Transactions

DBRS Ratings GmbH (DBRS Morningstar) confirmed its ratings on the notes issued by GAMMA Sociedade de Titularização de Créditos, S.A. (the Issuer) with respect to five Atlantes Mortgage transactions as follows:

Atlantes Mortgage N º 2 (AM2):

-- Class A Notes at AA (high) (sf)

Atlantes Mortgage N º 3 (AM3), Atlantes Mortgage N º 4 (AM4), Atlantes Mortgage N º 5 (AM5), and Atlantes Mortgage N º 7 (AM7):

-- Class A Notes at AAA (sf)

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

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 (August 2020 for AM3, AM5, and AM7 and September 2020 for AM2 and AM4);
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- Current available credit enhancement to the Class A Notes to cover the expected losses at their respective rating levels;
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

AM2, AM3, AM4, AM5, and AM7 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 specific assets and liabilities of the bank and took over the servicing of the portfolios, with no interruptions or disruptions. Santander Totta currently services the portfolios, with Banco BPI S.A. acting as backup servicer for AM3, AM4, AM5, and AM7 only.
PORTFOLIO PERFORMANCE

Delinquency percentages show a rather stable trend over the past two years across all five portfolios, with the 60-90 and 90+ days arrears as of the latest payment dates as follows:
-- For AM2, 0.02% and 0.65%, respectively;
-- For AM3, 0.02% and 0.41%, respectively;
-- For AM4, 0.10% and 0.47%, respectively;
-- For AM5, 0.14% and 0.41%, respectively; and
-- For AM7, 0.04% and 0.49%, respectively.

The gross cumulative default ratios as of the latest payment dates were as follows:

-- For AM2, 5.1%, stable from last year;
-- For AM3, 4.8%, stable from last year;
-- For AM4, 3.9%, slightly up from 3.7% last year;
-- For AM5, 4.4%, slightly up from 4.2% last year; and
-- For AM7, 5.7%, slightly up from 5.6% last year.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS

DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions as follows:

-- For AM2, the base case PD and LGD are 5.9% and 3.4%, respectively;
-- For AM3, the base case PD and LGD are 6.4% and 6.1%, respectively;
-- For AM4, the base case PD and LGD are 6.5% and 10.5%, respectively;
-- For AM5, the base case PD and LGD are 6.9% and 7.2%, respectively; and
-- For AM7, the base case PD and LGD are 8.3% and 11.9%, respectively.

CREDIT ENHANCEMENT

Ovecollateralisation of the outstanding collateral portfolios and the cash reserves provide credit enhancement to the Class A Notes in all five transactions. As of the respective payment dates, credit enhancement to the Class A Notes was as follows:

-- For AM2, 25.3% as of the September 2020 payment date, down from 26.9% as of the June 2019 payment date (the decrease is caused by the amortisation of the cash reserve);
-- For AM3, 35.2% as of the August 2020 payment date, slightly up from 35.0% as of the May 2019 payment date;
-- For AM4, 38.2% as of the September 2020 payment date, slightly up from 38.0% as of the June 2019 payment date;
-- For AM5, 43.5% as of the August 2020 payment date, down from 44.4% as of the May 2019 payment date (similarly to AM2, the decrease is caused by the amortisation of the cash reserve); and
-- For AM7, 49.3% as of the August 2020 payment date, slightly up from 48.9% as of the May 2019 payment date.

The cash reserve of AM2 is available to cover senior fees and expenses, swap payments, and interest payments on the Class A, Class B, and Class C Notes as well as to clear the Class A, Class B, and Class C Notes principal deficiency ledger (PDL). As of the September 2020 payment date, the cash reserve was equal to its target level of EUR 11.0 million.

The cash reserves of AM3, AM4, AM5, and AM7 are available to cover senior fees and expenses, swap payments, interest payments on the Class A Notes as well as to clear the Class A Notes PDL. As of the respective payment dates, the cash reserves of AM3, AM4, AM5, and AM7 were equal to their target levels of EUR 45.0 million, EUR 60.7 million, EUR 51.5 million, and EUR 49.1 million, respectively.

HSBC Bank plc acts as the account bank for all five transactions. Based on the private rating of the account bank, the downgrade provisions outlined in the transaction documents, and structural mitigants inherent in the transaction structures, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the Class A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

NatWest Markets is the swap counterparty for all five transactions. DBRS Morningstar has given no credit to the interest rate swaps in its analysis, as the swap documentation is not consistent with DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology.

DBRS Morningstar analysed the transaction structure in Intex.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many RMBS transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus.

For these transactions, DBRS Morningstar increased the expected default rate for self-employed borrowers and assumed a moderate decline in residential property prices. In addition, DBRS Morningstar conducted additional sensitivity analysis to determine that the transactions benefit from sufficient liquidity support to withstand potentially high payment holiday levels in the portfolios. Across the five transactions, between 25.4% and 29.1% of the current pool principal balance was in payment holiday as of the latest available portfolio cut-off.

On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 10 September 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/366543/dbrs-morningstar-global-macroeconomic-scenarios-september-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

On 5 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus is likely to affect the DBRS Morningstar-rated RMBS transactions in Europe. For more details, please see: https://www.dbrsmorningstar.com/research/360599/european-rmbs-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

ESG CONSIDERATIONS

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:

All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (22 April 2020).

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transactions 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 these transactions are listed at the end of this press release. These may be found at: http://www.dbrsmorningstar.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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at:
https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments

The sources of data and information used for these ratings include investor reports provided by HSBC Bank plc for AM2, AM3, AM4, and AM5; investor reports provided by Deutsche Bank AG, London Branch for AM7; additional information provided by Santander Totta; and loan-level data provided by the European DataWarehouse GmbH.

DBRS Morningstar did not rely upon third-party due diligence to conduct its analysis.

At the time of the initial rating, DBRS Morningstar was not supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating process.

The last rating actions on these transactions took place on 30 October 2019, following upgrade of Republic of Portugal’s Long-Term Foreign and Local Currency – Issuer Rating to BBB (high) from BBB, when DBRS Morningstar upgraded its rating of the Class A Notes of AM2 to AA (high) (sf) from AA (sf), and upgraded its ratings of the Class A Notes of AM3, AM4, AM5 and AM7 to AAA (sf) from AA (high) (sf).

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies is available at www.dbrsmorningstar.com.

To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the ratings (the Base Case):

-- DBRS Morningstar 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 5.9% and 3.4%, respectively.
-- For AM3, the base case PD and LGD of the current pool of loans for the Issuer are 6.4% and 6.1%, respectively.
-- For AM4, the base case PD and LGD of the current pool of loans for the Issuer are 6.5% and 10.5%, respectively.
-- For AM5, the base case PD and LGD of the current pool of loans for the Issuer are 6.9% and 7.2%, respectively.
-- For AM7, the base case PD and LGD of the current pool of loans for the Issuer are 8.3% and 11.9%, 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. Taking the Class A Notes of AM2 as 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 of the Class A Notes would be expected to fall to A (low) (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 A (low) (sf).

AM2 – 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 (low) (sf)
-- 50% increase in PD, expected rating of A (low) (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 A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)

AM3 – Class A Notes Risk Sensitivity:

-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

AM4 – Class A Notes Risk Sensitivity:

-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

AM5 – Class A Notes Risk Sensitivity:

-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

AM7 – Class A Notes Risk Sensitivity:

-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

For further information on DBRS Morningstar 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 U.S. regulations only.

Lead Analyst: Daniele Canestrari, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 17 May 2012

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main – Deutschland
Tel. +49 (69) 8088 3500

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.dbrsmorningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (22 April 2020),
https://www.dbrsmorningstar.com/research/359884/master-european-structured-finance-surveillance-methodology
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020), https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (21 September 2020) and European RMBS Credit Model 1.0.0.0,
https://www.dbrsmorningstar.com/research/366958/master-european-residential-mortgage-backed-securities-rating-methodology-and-jurisdictional-addenda
-- Interest Rate Stresses for European Structured Finance Transactions (28 September 2020), https://www.dbrsmorningstar.com/research/367292/interest-rate-stresses-for-european-structured-finance-transactions
-- Derivative Criteria for European Structured Finance Transactions (24 September 2020),
https://www.dbrsmorningstar.com/research/367092/derivative-criteria-for-european-structured-finance-transactions

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrsmorningstar.com/research/278375.

For more information on these credits or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].