DBRS Morningstar Confirms Credit Ratings on Three Atlantes Mortgage Transactions

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

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

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

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

All credit ratings address the timely payment of interest and the ultimate payment of principal on or before the respective final maturity dates.

The credit rating actions follow an annual review of the transactions and are based on the following analytical considerations:
-- Portfolio performances, in terms of delinquencies, defaults, and losses, as of the latest payment date for each transaction (August 2023 for AM3 and September 2023 for AM2 and AM4);
-- Updated 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 AAA (sf) credit rating level.

The transactions 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 and Banco BPI S.A. acts as backup servicer for AM3 and AM4 only. The transactions closed between March 2008 and February 2009 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
The three portfolios are performing within DBRS Morningstar’s expectations. Delinquencies are low, with 60- to 90-day and 90+-day arrears ratios as follows:
-- AM2: 0.2% and 0.8%, respectively, as of August 2023 cut-off date;
-- AM3: 0.4% and 0.2%, respectively, as of July 2023 cut-off date; and
-- AM4: 0.1% and 0.3%, respectively, as of August 2023 cut-off date.

The gross cumulative principal write-offs as of the latest portfolio cut-off dates for each transaction are as follows:
-- AM2: 5.2%, stable from the latest annual review of the transaction;
-- AM3: 4.8%, stable from the latest annual review of the transaction; and
-- AM4: 4.1%, slightly up from 4.0% as of the latest annual review of the transaction.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base case annualised PD and LGD assumptions as follows:
-- AM2: 5.1% and 5.8%, respectively;
-- AM3: 5.3% and 5.3%, respectively; and
-- AM4: 4.9% and 5.2%, respectively.

CREDIT ENHANCEMENT
Overcollateralisation of the outstanding collateral portfolios and the cash reserves provide credit enhancement to the Class A Notes across all transactions.

As of the latest payment date for each transaction, credit enhancement levels were as follows:
-- AM2: 26.5%, up from 25.4% as of the latest annual review of the transaction;
-- AM3: 36.5%, up from 35.4% as of the latest annual review of the transaction; and
-- AM4: 38.9%, up from 38.6% as of the latest annual review of the transaction.

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 2023, the cash reserve reached its floor of EUR 8.1 million.

The cash reserves of AM3 and AM4 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, respectively. For AM3, the reserve is at its floor level. As of the respective last payment dates, the cash reserves of AM3 and AM4 were equal to their target levels of EUR 33.0 million and EUR 41.4 million, respectively.

HSBC Bank plc (HSBC) acts as the account bank for the transactions. Based on DBRS Morningstar’s private rating on 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 credit ratings assigned to the Class A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

In December 2022, the swap counterparty for the transactions became Banco Santander S.A. DBRS Morningstar gives no credit to the interest rate swaps in its analysis, as the swap documentations are not in line with DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology.

DBRS Morningstar’s credit ratings on the rated notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

DBRS Morningstar’s credit ratings do not address nonpayment 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.

DBRS Morningstar analysed the transactions structures in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is the “Master European Structured Finance Surveillance Methodology” (22 October 2023), https://www.dbrsmorningstar.com/research/422281/master-european-structured-finance-surveillance-methodology.

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

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 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/421590/.

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.

The sources of data and information used for these ratings include investor reports provided by HSBC, 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 to conduct its analysis.

At the time of the initial credit ratings, DBRS Morningstar was not 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 these credit ratings 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 actions on these transactions took place on 28 October 2022, when DBRS Morningstar upgraded its credit rating on the Class A Notes of AM2 to AAA (sf) from AA (high) (sf) and confirmed its credit ratings on the Class A Notes of AM3 and AM4 at AAA (sf).

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

Sensitivity Analysis: To assess the impact of changing the transactions parameters on the ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit 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 Issuer are 5.2% and 35.1%, 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. Taking the Class A Notes of AM2 as an example, if the LGD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (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 (high) (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 (high) (sf).

AM2
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD, expected credit rating of AA (sf)
-- 50% increase in PD, expected credit rating of A (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of A (high) (sf)

AM3
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD, expected credit rating of AAA (sf)
-- 50% increase in PD, expected credit rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AAA (sf)

AM4
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD, expected credit rating of AAA (sf)
-- 50% increase in PD, expected credit rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit 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://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.

These ratings are 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: 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 these transactions can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (22 October 2023), https://www.dbrsmorningstar.com/research/422281/master-european-structured-finance-surveillance-methodology.
-- Legal Criteria for European Structured Finance Transactions (30 June 2023), https://www.dbrsmorningstar.com/research/416730/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023), https://www.dbrsmorningstar.com/research/420572/operational-risk-assessment-for-european-structured-finance-servicers.
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (13 September 2023) and European RMBS Credit Model 1.0.0.0, https://www.dbrsmorningstar.com/research/420575/master-european-residential-mortgage-backed-securities-rating-methodology-and-jurisdictional-addenda.
-- Derivative Criteria for European Structured Finance Transactions (18 September 2023), https://www.dbrsmorningstar.com/research/420754/derivative-criteria-for-european-structured-finance-transactions.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (4 July 2023), https://www.dbrsmorningstar.com/research/416784/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].