December 15, 2017 / 3:46 PM / a year ago

Fitch Revises Rating Watch on Atlantes and Azor Series to Negative

(The following statement was released by the rating agency) LONDON, December 15 (Fitch) Fitch Ratings has revised the Rating Watch on Atlantes Mortgage No.1 Plc (AM1), Atlantes Mortgage No. 3 (AM3), Atlantes Mortgages No. 4 (AM4), Atlantes Mortgage No. 5 (AM5), Atlantes Mortgages No.7 (AM7), Azor Mortgages Plc (AZ1) and Azor Mortgages No. 2 (AZ2) to Negative from Evolving. A full list of rating actions can be found at the end of this rating action commentary. The series is a securitisation of seasoned Portuguese residential mortgages originated by Banco Santander Totta, S.A. KEY RATING DRIVERS Provisioning Mechanism For AM4, as of the 20 September 2017 interest payment date (IPD), the investor reporting showed a total balance for the class A and B notes of EUR331.0 million. In comparison, the investor reporting showed an ending collateral balance (net of write-offs) of EUR326.8 million. The loan-level data for the corresponding cut-off date of 31 August 2017 reported a current balance of EUR322.3 million of performing and delinquent loans, plus EUR12.1 million of defaulted loans. For AZ1, as of the 20 September 2017 IPD, the investor reporting showed a total balance for the class A, B and C notes of EUR35.8 million. In comparison, the investor reporting showed an ending collateral balance (including write-offs) of EUR35.9 million. The loan-level data for the corresponding cut-off date of 31 August 2017 reported a current balance of EUR33.9 million of performing and delinquent loans, plus EUR2.0 million of defaulted loans. For AZ2, as of the 23 October 2017 IPD, AZ2's investor reporting showed a total balance for the class A and B notes of EUR158.8 million. In comparison, the investor reporting showed an ending collateral balance (including write-offs) of EUR157.2 million. The loan-level data for the corresponding cut-off date of 30 September 2017 reported a current balance of EUR156.1 million of performing and delinquent loans, plus EUR3.9 million of defaulted loans. Following a review of transaction documentation and discussions with the servicer, Fitch is of the opinion that the transaction provisioning mechanism has not been correctly applied, resulting in insufficient provisioning (and amortisation of the rated notes) taking place to date. This is currently under review by the servicer and Fitch anticipates that the servicer will take corrective action if it deems it necessary. For AM3, AM5 and AM7, the servicer has indicated to Fitch that it implemented corrective action in relation to this issue on the November 2017 distribution dates. Fitch has not yet received updated loan-level data following the servicer's amendments. For AM1, Fitch's analysis indicates that the transaction has not been adversely affected by insufficient provisioning; however, Fitch understands that this transaction is under review by the servicer. Multiple Loans Across the Atlantes and Azor series, Fitch notes that multiple loans are reported to be secured upon the same property (ie duplicate property identifier within and across portfolios). Based upon a review of the loan-level data, Fitch understands that this reflects financing arrangements such as further advances, where multiple loans to the same borrower are secured upon the same property. In this situation, Fitch expects the loan-level data to reflect the arrangement by adjusting the data provided in the valuation amount or pro-rata balance field. The loan-level data does not appear to reflect the presence of multiple loans attached to individual properties. Fitch has not applied any quantitative adjustment to address this to date. This issue is being investigated by the servicer and Fitch expects to receive updated loan-level information. European RMBS Rating Criteria The ratings were previously on Rating Watch Evolving, pending the application of Fitch's updated criteria. For the purpose of this event-driven action, Fitch has not completed updated asset or cash flow modelling of the transactions. Therefore, the ratings continue to be subject to the application of the updated criteria. RATING SENSITIVITIES A timely resolution of the provisioning mechanism issue may, in isolation, lead to an upgrade, taking into account the resultant model-implied rating. Any rating actions will be subject to the sovereign rating cap of 'A+sf' for Portuguese RMBS. A timely resolution of the multiple loan issue may, in isolation, lead to a downgrade or upgrade, depending upon the magnitude of the data adjustments and the presence of any other remedial action. A non-timely resolution of either of the above issues may lead to a downgrade, or withdrawal of the ratings. The servicer has indicated to Fitch that it intends to resolve the issues on a timely basis. In addition to the above transaction-specific issues, the ratings remain subject to the application of Fitch's European RMBS Rating Criteria. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO RULE 17G-10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has not conducted any checks on the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. Fitch did not undertake a review of the information provided about the underlying asset pools ahead of the transactions' initial closing. The subsequent performance of the transactions is consistent with the agency's expectations, given the operating environment. Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was reliable. Overall, and together with the assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis, according to its applicable rating methodologies, indicates that it is adequately reliable. SOURCES OF INFORMATION The information below was used in the analysis. Loan-by-loan data obtained from European Datawarehouse as at the cut-off date: 30 September 2017 for AM1 31 July 2017 for AM3 31 August 2017 for AM4 31 July 2017 for AM5 31 July 2017 for AM7 31 August 2017 for AZ1 30 September 2017 for AZ2 Transaction reporting provided by: Deutsche Bank as of the payment date: 17 October 2017 for AM1 23 August 2017 for AM7 -0 September 2017 for AZ1 HSBC as of the payment date: 21 August 2017 for AM3 20 September 2017 for AM4 23 August 2017 for AM5 23 October 2017 for AZ2 Fitch has revised the Rating Watches for the following ratings: AM1 Class A (ISIN XS0161394324): 'A+sf'; Rating Watch revised to Negative from RWE Class B (ISIN XS0161394910): 'A+sf'; Rating Watch revised to Negative from RWE Class C (ISIN XS0161395305): 'A+sf'; Rating Watch revised to Negative from RWE Class D (ISIN XS0161395560): 'Asf'; Rating Watch revised to Negative from RWE AM3 Class A (ISIN XS0395875999): 'A+sf'; Rating Watch revised to Negative from RWE AM4 Class A (ISIN XS0412478199): 'A+sf'; Rating Watch revised to Negative from RWE AM5 Class A (ISIN XS0472854370): 'A+sf'; Rating Watch revised to Negative from RWE AM7 Class A (ISIN PTGAMAOM0014): 'A+sf'; Rating Watch revised to Negative from RWE AZ1 Class A (ISIN XS0206334095): 'Asf'; Rating Watch revised to Negative from RWE Class B (ISIN XS0206334335): 'Asf'; Rating Watch revised to Negative from RWE Class C (ISIN XS0206334764): 'Asf'; Rating Watch revised to Negative from RWE AZ2 Class A (ISIN XS0378557234): 'Asf'; Rating Watch revised to Negative from RWE Contacts: Lead Surveillance Analyst Robert Luchford Analyst +44 20 3530 1655 Fitch Ratings Limited 30 North Colonnade London E14 5GN Committee Chairperson Grant England Co-Head EMEA RMBS Senior Director +44 203 530 1130 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: Additional information is available on Applicable Criteria European RMBS Rating Criteria (pub. 27 Oct 2017) here Fitch's Interest Rate Stress Assumptions for Structured Finance and Covered Bonds - Excel File (pub. 17 Feb 2017) here Global Structured Finance Rating Criteria (pub. 03 May 2017) here Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 23 May 2017) here Structured Finance and Covered Bonds Counterparty Rating Criteria: Derivative Addendum (pub. 23 May 2017) here Structured Finance and Covered Bonds Country Risk Rating Criteria (pub. 18 Sep 2017) here Structured Finance and Covered Bonds Interest Rate Stresses Rating Criteria (pub. 17 Feb 2017) here Additional Disclosures Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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