DBRS Ratings GmbH (DBRS Morningstar) confirmed its AA (sf) rating on the Class A Notes issued by Sagres STC (Pelican Mortgages No. 4) (the Issuer).
The rating on the Class A Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in September 2056.
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 March 2020 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- Current available credit enhancement to the notes to cover the expected losses at the AA (sf) rating level.
The Issuer is a securitisation of Portuguese first-lien residential mortgage loans originated and serviced by Caixa Económica Montepio Geral (Montepio). The notes have been issued under the Sociedade de Titularização de Créditos regime. The transaction closed in May 2008.
As of the March 2020 payment date, one-to-two months, two-to-three months and three-to-twelve months delinquencies represented 0.1%, 0.1%, and 0.2% of the outstanding principal balance of the portfolio, respectively, while defaulted and written-off loans represented 0.3%. Gross cumulative deemed principal losses amounted to 1.3% of the original portfolio balance, with cumulative recoveries of 73.6%.
PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 7.5% and 11.1%, respectively.
The subordination of the junior obligations and the cash reserve provide credit enhancement to the Class A Notes. As of the March 2020 payment date, credit enhancement to the Class A Notes remained at 24.3%, unchanged from 12 months ago as the transaction continues to amortise on a pro rata basis.
As of the March 2020 payment date, the cash reserve account was at its target balance of EUR 15.4 million, equal to the higher of 3% of the balance of notes outstanding and the floor of EUR 10.0 million. The cash reserve is available to cover senior expenses and interest payments on the mortgage-backed notes, and to clear principal deficiency ledger balances.
Citibank N.A., London Branch (Citibank) acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of Citibank, 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 Royal Bank of Scotland NV, London Branch (RBS) acts as the Hedge Counterparty for the transaction. As the DBRS Morningstar private rating for RBS does not meet the rating requirement given the rating assigned to the Class A Notes, as described in DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology, the swap agreement was not considered in the cash flow analysis of the transaction.
DBRS Morningstar analysed the transaction structure in Intex DealMaker.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the rating is the “Master European Structured Finance Surveillance Methodology” (13 December 2019). 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 at: http://www.dbrsmorningstar.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.dbrsmorningstar.com/research/350410/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for this rating include investor reports provided by Citibank 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 last rating action on this transaction took place on 9 April 2019, when DBRS Morningstar upgraded the rating of the Class A Notes to AA (sf) from A (high) (sf).
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies is available at www.dbrsmorningstar.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 7.5% and 11.1%, respectively. At the AA (sf) rating level, the corresponding PD is 24.7% and the LGD is 28.6%.
-- 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 on the Class A Notes would be expected to remain at AA (sf), ceteris paribus. If the PD increases by 50%, the rating on the Class A Notes would be expected to remain at AA (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating on the Class A Notes would be expected to decrease to A (high) (sf).
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (low) (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 (high) (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 U.S. regulations only.
Lead Analyst: Daniel Rakhamimov, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 24 February 2011
DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrsmorningstar.com/about/methodologies.
-- Master European Structured Finance Surveillance Methodology (13 December 2019), https://www.dbrsmorningstar.com/research/354616/master-european-structured-finance-surveillance-methodology
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (10 December 2019) and European RMBS Credit Model v 18.104.22.168,
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
-- Derivative Criteria for European Structured Finance Transactions (26 September 2019), https://www.dbrsmorningstar.com/research/350907/derivative-criteria-for-european-structured-finance-transactions
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020), https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers
-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2019), https://www.dbrsmorningstar.com/research/351557/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.dbrsmorningstar.com/research/278375.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at email@example.com.
This press release was amended on 17 April 2020 to add the model used in the analysis.