DBRS Ratings Limited (DBRS) confirmed its rating on the Class A Mortgage-Backed Floating Rate Notes (Class A Notes) issued by GAMMA - Sociedade de Titularização de Créditos, S.A. (Azor 2) (the issuer) at AA (high) (sf).
The rating action follows an annual review of the transaction and is based on the following analytical considerations:
-- The overall portfolio performance as of the January 2019 payment date, in particular regarding low levels of cumulative net loss and delinquencies;
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions for the remaining collateral pool; and
-- The current levels of credit enhancement (CE) available to the Class A Notes to cover expected losses assumed in line with the AA (high) (sf) rating level.
The rating on the Class A Notes addresses the timely payment of interest and the ultimate payment of principal payable on or before the final legal maturity date in December 2065.
The issuer is a Portuguese securitisation collateralised by a current portfolio of EUR 137.0 million residential mortgage loans originally granted by Banco Banif e Comercial dos Açores, S.A. The transaction follows the Sociedade de Titularização de Créditos (STC) arrangement and closed in July 2008. Banco Banif e Comercial dos Açores, S.A. was fully incorporated into Banco Internacional do Funchal SA (Banif) in January 2009, and in December 2015, Banco Santander Totta S.A. acquired part of Banif’s assets and obligations, including the contractual position of Banif in securitisation transactions.
As of the January 2019 payment date, 30-day to 60-day delinquencies represented 0.1% of the outstanding principal balance and 60-day to 90-day delinquencies represented also 0%, while delinquencies greater than 90 days represented 0.3%. Defaulted mortgages, which are receivables that have not been written-off but have at least 12-monthly instalments in arrears, stood at 0.3% of the outstanding principal balance. The gross cumulative write-offs as a ratio of the initial portfolio balance represented 3.0%, of which 58.2% have been recovered so far.
DBRS conducted a loan-by-loan analysis on the remaining pool and updated its base case PD and LGD assumptions on the outstanding portfolio to 15.6% and 35.8%, respectively. Additional stresses were applied to reflect a growing concentration of secured properties in the Azores region of Portugal.
CE is provided by the subordination of the Class B Notes. CE for the Class A Notes increased to 31.3% in January 2019 from 15.5% at closing. A EUR 6.8 million reserve was funded at closing to provide liquidity support to the Class A Notes. The reserve fund is currently at its target level of EUR 6.8 million, although is permitted to amortise under certain conditions.
To assess a hypothetical upgrade to AAA (sf) on the Class A Notes, DBRS considered additional stresses to account for a potential currency depreciation and capital controls in the unlikely scenario of a Portuguese eurozone exit and concluded that the current level of credit enhancements as well as the liquidity mitigants present in each deal would not be sufficient, at that AAA (sf) rating level scenario, to mitigate the country risk given the current Long-Term Issuer Rating of Portugal at BBB.
HSBC Bank plc acts as the account bank for the transaction. Based on the DBRS private rating of HSBC Bank plc, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS considers the risk arising from the exposure to the account bank to be consistent with the Minimum Institution Rating, given the rating assigned to the Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.
NatWest Markets PLC (NatWest) is the swap counterparty. The DBRS Long-Term Critical Obligations Rating of NatWest at “A” is consistent with the First Rating Threshold defined in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the rating is: “Master European Structured Finance Surveillance Methodology”.
DBRS 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 rating action.
Other methodologies referenced in this transaction 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: https://www.dbrs.com/research/333487/rating-sovereign-governments.
The sources of data and information used for this rating include quarterly investor reports provided by HSBC Bank plc and data provided by Banco Santander Totta S.A. and from the European DataWarehouse GmbH.
DBRS did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating, 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 this rating 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 this transaction took place on 8 March 2018, when DBRS upgraded its rating on the Class A Notes to AA (high) (sf) from AA (sf).
Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.
To assess the impact of the changing the transaction parameters on this rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):
-- DBRS expected a base case PD and LGD for the portfolio 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 assets of receivables are 15.6% and 35.8%, respectively. At the AA (high) (sf) rating level, the corresponding PD is 46.9% and the LGD is 47.2%
For example, if the LGD increases by 50%, the rating of the Class A Notes would be expected to remain at AA (high) (sf), ceteris paribus. If the PD increases by 50%, the rating of the Class A Notes would be expected to remain at AA (high) (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to decrease to A (low) (sf), ceteris paribus.
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)
-- 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 (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (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 Limited are subject to EU and US regulations only.
Lead Analyst: Matt Albin, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 26 December 2011
DBRS Ratings Limited
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.
-- Master European Structured Finance Surveillance Methodology
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Interest Rate Stresses for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
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 firstname.lastname@example.org.