DBRS Ratings GmbH (DBRS Morningstar) upgraded its rating on the Class A Notes issued by Tagus - Sociedade de Titularização de Créditos, S.A. (Pelican Finance No. 1) (the Issuer) to A (high) (sf) from A (sf).
The rating addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in December 2028.
The upgrade follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults and losses;
-- 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 A (high) (sf) rating level.
The Issuer is a securitisation collateralised by a portfolio of consumer and auto loan receivables granted by Caixa Económica Montepio Geral (Montepio) and Montepio Crédito – Instituição Financeira de Crédito, S.A. (Montepio Credito) to individuals residing in Portugal. The transaction closed in May 2014 with an initial portfolio balance of EUR 294.0 million and had a 42-month revolving period, during which additional loans were purchased subject to certain conditions and limitations. The revolving period ended on the November 2017 payment date. The transaction has been amortising on a pro rata basis since the June 2018 payment date as the pro rata test has been satisfied.
As of the September 2019 payment date, loans that were one- to two-months and two- to three-months delinquent represented 0.9% and 0.6% of the portfolio balance, respectively, while loans three- to six-months delinquent represented 0.6%. Gross cumulative defaults amounted to 1.7% of the aggregate initial and subsequent portfolio balances, of which 52.9% has been recovered to date. The sharp increase in the recovery rate from 27.8% as of the July 2019 payment date is a result of a repurchase of non-performing loans originated by Montepio, which resulted in approximately EUR 3.0 million of principal recoveries in July 2019.
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base case PD and LGD assumptions to 15.3% and 65.7%, respectively.
Credit enhancement to the Class A Notes is provided by subordination of the junior obligations and the cash reserve account. As of the September 2019 payment date, credit enhancement to the Class A Notes was 51.3%, up from 36.0% at the DBRS Morningstar initial rating.
The transaction benefits from a non-amortising cash reserve account, currently at its target level of EUR 14.7 million. The cash reserve account is available to cover senior expenses, interest payments on the Class A Notes and cure the Class A principal deficiency ledger balance.
Deutsche Bank AG, London Branch (DB London) acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of DB London, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Class A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.
The transaction structure was analysed in Intex DealMaker.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the rating is the “Master European Structured Finance Surveillance Methodology”. 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 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 “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for this rating include investor reports provided by DB London (the Transaction Manager), servicer reports provided by Montepio and Montepio Credito 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 purpose of providing this rating 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 lead analyst responsibilities for this transaction have been transferred to Daniel Rakhamimov.
The last rating action on this transaction took place on 24 October 2018, when DBRS confirmed the rating on the Class A Notes at A (sf).
Information regarding DBRS Morningstar ratings, including definitions, policies and methodologies is available at www.dbrs.com.
To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the 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 15.3% and 65.7%, 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. For example, if the LGD increases by 50%, the rating of the Class A Notes would be expected to decrease to A (sf), ceteris paribus. If the PD increases by 50%, the rating of the Class A Notes would be expected to decrease to BBB (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 BBB (sf).
Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (sf)
-- 25% increase in PD, expected rating of A (low) (sf)
-- 50% increase in PD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (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 (sf)
For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see:
Ratings assigned by DBRS Ratings GmbH are subject to EU and US regulations only.
Lead Analyst: Daniel Rakhamimov, Senior Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 16 May 2014
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.
-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Interest Rate Stresses for European Structured Finance Transactions
A description of how DBRS Morningstar 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 email@example.com.