DBRS Morningstar Confirms Credit Rating on GAMMA - Sociedade de Titularização de Créditos, S.A. (Hipototta No. 13)

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

The credit rating addresses the timely payment of interest and the ultimate payment of principal on or before the final maturity date in October 2072.

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 April 2023 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the AA (low) (sf) credit rating level.

Hipototta No. 13 is a securitisation of Portuguese residential mortgages originated and serviced by Banco Santander Totta S.A. (BST), a core operating subsidiary within the Banco Santander S.A. group. The assets are serviced by BST, with Banco Santander S.A. acting as the backup servicer facilitator. The transaction closed in January 2018, when the special-purpose vehicle issued two classes of floating-rate notes (the Class A and Class B Notes) and one class of additional return notes (the Class C Notes).

PORTFOLIO PERFORMANCE
As of the March 2023 cut-off date, delinquencies were low, with loans two to three months in arrears representing 0.05% of the outstanding portfolio balance, slightly down from 0.07% as of the June 2022 cut-off date. The 90+ days in arrears represented 0.08% of the outstanding portfolio balance, up from 0.07% as of June 2022. The gross cumulative default ratio was equal to 0.2% of the initial portfolio balance, slightly up from 0.1% last year.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base case PD and LGD assumptions to 6.9% and 17.3%, respectively.

CREDIT ENHANCEMENT
Overcollateralisation of the outstanding collateral portfolio and the reserve fund provide credit enhancement to the Class A Notes. As of the April 2023 payment date, credit enhancement to the Class A Notes was 48.5%, up from 43.3% in July 2022.

The transaction benefits from an amortising reserve fund, available to cover shortfalls on senior fees, expenses, interest payments on the Class A Notes, and to clear the Class A Notes principal deficiency ledger. The reserve is currently at its target level of EUR 33.8 million, (or 3.0% of the outstanding balance on the Class A and the Class B Notes), and it is floored at 1.5% of the initial portfolio balance.

Banco Santander Totta S.A. acts as the account bank for the transaction. Based on the DBRS Morningstar Long-Term Issuer Rating of Banco Santander Totta S.A. at “A”, the downgrade provisions outlined in the transaction documents, and structural mitigants inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the credit rating assigned to the Class A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar’s credit rating on the Class A Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are listed at the end of this Press Release.

DBRS Morningstar’s credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (4 July 2023).

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit rating is the “Master European Structured Finance Surveillance Methodology” (7 February 2023), https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-methodology.

Other methodologies referenced in this transaction are listed at the end of this press release.

DBRS Morningstar 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 credit rating action.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit 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/401817/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 this credit rating include servicer reports provided by Citibank N.A., London branch, servicer reports and additional information provided by BST, as well as 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 credit rating, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the credit rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing this credit rating to be of satisfactory quality.

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

The last credit rating action on this transaction took place on 5 August 2022, when DBRS Morningstar upgraded its credit rating on the Class A Notes to AA (low) (sf) from A (high) (sf).

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

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit rating (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 Issuer are 6.9% and 17.3%, respectively.
-- The risk sensitivity overview below illustrates the credit 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 credit rating of the Class A Notes would be expected to remain at AA (low) (sf), assuming no change in the PD. If the PD increases by 50%, the credit rating of the Class A Notes would be expected to remain at AA (low) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the credit rating of the Class A Notes would be expected to remain at AA (low) (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AA (low) (sf)
-- 50% increase in LGD, expected credit rating of AA (low) (sf)
-- 25% increase in PD, expected credit rating of AA (low) (sf)
-- 50% increase in PD, expected credit rating of AA (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AA (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AA (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AA (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (low) (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://registers.esma.europa.eu/cerep-publication/. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Pascale Kallas, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 9 January 2018

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

-- Legal Criteria for European Structured Finance Transactions (30 June 2023), https://www.dbrsmorningstar.com/research/416730/legal-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (22 September 2022), https://www.dbrsmorningstar.com/research/402943/interest-rate-stresses-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2022), https://www.dbrsmorningstar.com/research/402774/operational-risk-assessment-for-european-structured-finance-servicers.
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (5 July 2023) and European RMBS Credit Model 1.0.0.0, https://www.dbrsmorningstar.com/research/416808/master-european-residential-mortgage-backed-securities-rating-methodology-and-jurisdictional-addenda.

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].