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):
-- Class A Notes at AAA (sf)

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

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

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

All ratings 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 respective latest payment dates (August 2021 for AM3, AM5, and AM7 and September 2021 for AM2 and AM4);
-- Portfolio default rate (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). Banco Santander Totta S.A. (Santander Totta) services the mortgage portfolios, with Banco BPI S.A. acting as backup servicer for AM3, AM4, AM5, and AM7. The transactions closed between March 2008 and November 2010 and are structured with separate interest and principal waterfalls, principal deficiency ledger (PDL) mechanisms, and several performance-based pro rata tests that, if breached, trigger the sequential amortisation of the notes.

PORTFOLIO PERFORMANCE
Delinquency percentages show a decreasing trend over the past years across all five portfolios, with the 60-90 and 90+ days arrears as of the latest payment dates as follows:
-- AM2, 0.1% and 0.4%, respectively;
-- AM3, 0.1% and 0.2%, respectively;
-- AM4, 0.1% and 0.2%, respectively;
-- AM5, 0.1% and 0.2 %, respectively;
-- AM7, 0.1% and 0.1%, respectively.

The gross cumulative default ratios as of the latest payment dates were as follows:
-- AM2, 5.2%, slightly up from 5.1% last year;
-- AM3, 4.8%, stable from last year;
-- AM4, 4.0%, slightly up from 3.9% last year;
-- AM5, 4.4%, stable from last year;
-- AM7, 5.7%, stable from 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:
-- AM2, 7.3% and 8.8%, respectively;
-- AM3, 7.2% and 7.4%, respectively;
-- AM4, 6.5% and 7.0%, respectively;
-- AM5, 7.2% and 8.5%, respectively;
-- AM7, 10.1% and 15.6%, respectively.

CREDIT ENHANCEMENT
Overcollateralisation of the outstanding collateral portfolios and the cash reserve provide credit enhancement to the Class A Notes across all transactions. The cash reserve is deemed to provide credit enhancement as, given its position in the waterfall, it is able to cover the Class A Notes’ PDL. As of the respective latest payment dates, credit enhancement to the Class A Notes was as follows:
-- AM2, 25.1% as of September 2021, stable from September 2020;
-- AM3, 35.3% as of August 2021, stable from August 2020;
-- AM4, 38.3% as of September 2021, stable from September 2020;
-- AM5, 43.7% as of August 2021, stable from August 2020;
-- AM7, 49.5% as of August 2021, stable from August 2020.

As the notes are currently being repaid on a pro rata basis, the credit enhancement to the Class A Notes is not increasing as the portfolios deleverage.

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 PDL. As of September 2021, the cash reserve was at its target level of EUR 9.4 million.

The cash reserves of AM3, AM4, AM5, and AM7 are available to cover senior fees and expenses, swap payments, and 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 40.5 million, EUR 54.3 million, EUR 46.1 million, and EUR 43.9 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 compliant with DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology.

DBRS Morningstar analysed the transactions’ structures in Intex.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an immediate economic contraction, leading in some cases to increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may continue to increase in the coming months for many RMBS transactions. The ratings are based on additional analysis 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 conducted additional sensitivity analysis to determine that the transactions benefit from sufficient liquidity support to withstand potentially high levels of payment holidays in the portfolios.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 8 September 2021. DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/384150/baseline-macroeconomic-scenarios-for-rated-sovereigns and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

On 14 June 2021, DBRS Morningstar updated its 5 May 2020 commentary outlining the impact of the coronavirus crisis on performance of DBRS Morningstar-rated RMBS transactions in Europe one year on. For more details, please see: https://www.dbrsmorningstar.com/research/380094/the-impact-of-covid-19-on-european-mortgage-performance-one-year-on and https://www.dbrsmorningstar.com/research/360599/european-rmbs-transactions-risk-exposure-to-coronavirus-covid-19-effect.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (8 February 2021).

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: https://www.dbrsmorningstar.com/about/methodologies.

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 transactions’ legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action of each transaction.

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/381451/global-methodology-for-rating-sovereign-governments.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report:
https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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 performance 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 in order 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 28 October 2020, when DBRS Morningstar confirmed its rating on the Class A Notes of AM2 at AA (high) (sf) and on the Class A Notes of AM3, AM4, AM5, and AM7 at AAA (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 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 Issuers are as follows:
-- AM2, 7.3% and 8.8%, respectively;
-- AM3, 7.2% and 7.4%, respectively;
-- AM4, 6.5% and 7.0%, respectively;
-- AM5, 7.2% and 8.5%, respectively;
-- AM7, 10.1% and 15.6%, 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 an example, if the LGD increases by 50%, the rating on the Class A Notes would be expected to fall to AA (sf), assuming no change in the PD. If the PD increases by 50%, the rating on 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 on the Class A Notes would be expected to fall to BBB (high) (sf).

AM2 – Class A Notes
-- 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 A (sf)
-- 50% increase in PD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (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
-- 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 AA (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
-- 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 AA (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
-- 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 AA (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
-- 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 AA (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:
https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Daniele Canestrari, Assistant Vice President
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: https://www.dbrsmorningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (8 February 2021), https://www.dbrsmorningstar.com/research/373435/master-european-structured-finance-surveillance-methodology.
-- Derivative Criteria for European Structured Finance Transactions (20 September 2021), https://www.dbrsmorningstar.com/research/384624/derivative-criteria-for-european-structured-finance-transactions.
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (17 September 2021) and European RMBS Credit Model 1.0.0.0, https://www.dbrsmorningstar.com/research/384582/master-european-residential-mortgage-backed-securities-rating-methodology-and-jurisdictional-addenda.
-- Legal Criteria for European Structured Finance Transactions (29 July 2021), https://www.dbrsmorningstar.com/research/382171/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (16 September 2021), https://www.dbrsmorningstar.com/research/384513/operational-risk-assessment-for-european-structured-finance-servicers.
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2021),
https://www.dbrsmorningstar.com/research/384920/interest-rate-stresses-for-european-structured-finance-transactions.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021), https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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

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