DBRS Ratings Limited (DBRS Morningstar) assigned the following ratings to the notes issued by TAGUS - Sociedade de Titularização de Créditos, S.A. (RMBS Green Belém No.1) (the Issuer):
-- Class A Notes rated AA (high) (sf)
-- Class B Notes rated A (high) (sf)
The rating on the Class A Notes addresses the timely payment of interest and ultimate repayment of principal on or before the final maturity date in 2063. The rating on the Class B Notes addresses the ultimate payment of interest and the ultimate repayment of principal on or before the final maturity date. The Class C Notes issued in this transaction are not rated by DBRS Morningstar.
Unión de Créditos Inmobiliarios, S.A. E.F.C. – Sucursal em Portugal (UCI Portugal or the company) originated the mortgage loans. Proceeds from the issuance of the rated notes and part of the proceeds from the issuance of the Class C Notes were used to purchase a portfolio of prime first-lien mortgages secured over owner-occupied residential properties located in Portugal. UCI Portugal committed to use an amount equal to the issuance proceeds of the Class A Notes to originate mortgage loans for residential properties that satisfy the Climate Bond Initiative’s sector-specific criteria for low carbon buildings. The proceeds’ use will be certified by a third-party opinion from Sustainalytics.
Subordination and a reserve fund provides credit enhancement to this transaction. The amortising reserve fund provides liquidity support to the Class A and Class B Notes.
Up to and including the March 2025 payment date, the Class A Notes will pay a floating coupon rate of three-month Euribor + 0.55%. Following the March 2025 payment date, the Class A Notes will step up to pay a coupon equal to three-month Euribor + 0.83%. The Class B Notes will pay a floating coupon rate of three-month Euribor + 0.75% up to March 2025 and three-month Euribor + 1.13% thereafter. The Class C Notes will pay three-month Euribor + 2.70% during the life of the transaction. The notes will pay interest on a quarterly basis.
Interest rate risk is hedged via a cap transaction entered between the Issuer and Banco Santander S.A. as the cap counterparty, under which the cap counterparty pays to the Issuer, if positive, three-month Euribor minus 3% in the first five years and three-month Euribor minus 6% in the following five years, on a cap notional reflecting the scheduled amortisation of the fixed-rate loans and the mixed-rate loans (currently fixed rate but will switch to floating rate in the future).
The seller (UCI Portugal) acts as servicer of the transaction and will retain the Class C Notes in order to retain at least 5% in the securitisation, in accordance with European Union securitisation regulations. The transaction is expected to be compliant with Simple, Transparent, and Standardised securitisation requirements; this did not affect DBRS Morningstar’s analysis.
As of 4 March 2020, the portfolio consisted of 4,029 loans extended to 4,029 borrowers with an aggregate principal balance of EUR 385 million. UCI Portugal originated all of the loans. The portfolio excludes all loans that have either been restructured or been in arrears for more than 30 days at any point during the life of the mortgages so far. .
The transaction portfolio does not comprise loans originated between 2004 and 2008, which have shown the worst historical performance, and only loans originated in 2009 or thereafter. These newer originations are expected to perform better than the pre-crisis vintages because of tighter underwriting criteria. The weighted-average (WA) seasoning of the pool is 3.7 years and the WA remaining term is 27.2 years. There is no concentration in the maturity profile of the portfolio. There are no mortgages that are in arrears or have been in arrears for more than 30 days since origination.
A small share (5.3% by balance) of the loans in the portfolio are bridge loans, which are granted to borrowers purchasing a new home but who had not yet sold their current residence. About 14.0% of the portfolio were previously bridge loans but the second property has been sold. For the loans that are currently bridge loans, only the loans on the new property are securitised. The other loan is not in the pool and it is not securitised.
The origination quality of the pool is strong across vintages because of the borrowers’ prime features (85% full-time employees, and 100% purchase as loan purpose) and the prudent lending decisions underpinned by full valuation reports and a WA original loan-to-value of 67.1%.
DBRS Morningstar based its ratings on the following analytical considerations:
--The transaction capital structure, including the form and sufficiency of available credit enhancement to support DBRS Morningstar-projected expected cumulative losses under various stressed scenarios.
--The credit quality of the portfolio and DBRS Morningstar’s qualitative assessment of the originators’ capabilities with regard to originations, underwriting, and servicing.
--The transaction’s ability to withstand stressed cash flow assumptions and repay the noteholders according to the terms and conditions of the notes.
--The transaction parties’ financial strength in order to fulfil their respective roles.
--The structural mitigants in place to avoid potential payment disruptions caused by operational risk, such as downgrade and replacement language in the transaction documents, and the reserve fund.
--The transaction’s legal structure and its consistency with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology, as well as the presence of the appropriate legal opinions that address the assignment of the assets to the Issuer.
DBRS Morningstar analysed its transaction structure in Intex DealMaker, considering the default rates at which the rated notes did not return all specified cash flows.
The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many RMBS transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. On 16 April 2020, DBRS Morningstar’s Sovereign group published its outlook on the impact on key economic indicators for the 2020-22 time frame. For details see the following commentaries: https://www.dbrsmorningstar.com/research/359679/global-macroeconomic-scenarios-implications-for-credit-ratings and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. DBRS Morningstar’s analysis considered impacts consistent with the moderate scenario in the referenced reports.
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.
As mentioned above, UCI Portugal committed to use an amount equal to the issuance proceeds of the Class A Notes to originate mortgage loans for residential properties that satisfy the Climate Bond Initiative’s sector-specific criteria for low carbon buildings. The proceeds’ use will be certified by a third-party opinion from Sustainalytics. UCI Portugal’s commitment did not impact DBRS Morningstar’s rating analysis, considering that the newly originated ‘green’ mortgages are not part of the securitisation.
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.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is “Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda” (10 December 2019).
DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.
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 these ratings include loan-level data, historical performance, recovery, and prepayment data provided by Banco Santander, S.A.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
DBRS Morningstar was 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 purposes of providing these ratings 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.
These ratings concern a newly issued financial instrument. These are the first DBRS Morningstar ratings on this financial instrument.
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.
To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):
-- In respect of the Class A Notes, the probability of default (PD) and loss given default (LGD) at the AA (high) (sf) stress scenario of 23.7% and 33.2%, respectively.
-- In respect of the Class B Notes, the PD and LGD at the A (high) (sf) stress scenario of 16.8% and 30.2%, respectively.
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% 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, expected rating of AA (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of A (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, expected rating of A (low) (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 (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: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.
Ratings assigned by DBRS Ratings Limited are subject to EU and U.S. regulations only.
Lead Analyst: Roger Bickert, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 1 May 2020
DBRS Ratings Limited
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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 Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (10 December 2019) and European RMBS Credit Model v 184.108.40.206
-- Legal Criteria for European Structured Finance Transactions (11 September 2019)
-- Derivative Criteria for European Structured Finance Transactions (26 September 2019)
-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2019)
-- Operational Risk Assessment for European Structured Finance Originators (28 February 2020), https://www.dbrsmorningstar.com/research/357430/operational-risk-assessment-for-european-structured-finance-originators
-- 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
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 firstname.lastname@example.org.