DBRS Assigns Ratings to Castilho Mortgages No. 1 Notes

DBRS Ratings Limited (“DBRS”) has assigned a ‘A’ (high) (sf) rating to the Class A notes issued by Tagus – Sociedade de Titularizacao de Creditos, S.A. (“Castilho, Issuer”).

Castilho is a securitisation of a portfolio of first ranking Portuguese prime residential mortgages funded by the issuance of Class A and Class B mortgage-backed notes. The mortgages were originated by Deutsche Bank AG, Portugal Branch (“DBAG”) and serviced by DBAG under Castilho.

The transaction has a revolving period for the first three years since the closing of the transaction and the Issuer will purchase new loans from DBAG subject to portfolio conditions. DBRS has assessed the credit risk of the mortgage portfolio as allowed by the portfolio conditions for purchase of new loans.

The credit enhancement and liquidity for the Class A notes are provided by the subordination of Class B notes (15% in size; the Class B notes are not rated by DBRS) and a fully-funded reserve fund (3% of the collateralised notes) which can amortise during the life of the transaction subject to the satisfaction of specific conditions. The liquidity for payment of interest on the Class A notes is additionally supported by the use of principal receipts. The provisioning for defaults (loans in arrears for greater than 12 months) allows for excess spread (if available) to be trapped and used for recovering principal on defaulted loans. This structural feature is considered positive as otherwise the excess spread, if any, would flow through the waterfall, to the originator.

The transaction is unhedged. DBRS has stressed the interest receipts from the assets and interest payments on the notes based on the interest rate stresses in accordance with its Unified Interest Rate Model Methodology for European Securitisations (UIRM).

In order to mitigate deposit set-off risk, the transaction includes a variable funding note (VFN), which will be funded based on breach of defined rating level of DBAG, up to a maximum of €300 million.

The ratings are based upon DBRS review of the following analytical considerations:

• The transaction’s capital structure and the form and sufficiency of available credit enhancement. Relevant credit enhancement is in the form of subordination, a reserve fund, and excess spread.
• The credit quality of the mortgages backing the notes and the ability of the servicer to perform collection activities on the collateral.
• The transaction parties’ capabilities with respect to originations, underwriting, servicing and financial strength.
• The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms of the transaction documents.
• The legal structure and presence of legal opinions addressing the assignment of the assets to the issuer and the consistency with the DBRS Legal Criteria for European Structured Finance Transactions.

Notes:
All figures are in EUR unless otherwise noted.

The principal methodologies applicable are:
• Master European Residential Mortgage-Backed Securities Rating Methodology
• Legal Criteria for European Structured Finance Transactions
• Operational Risk Assessment for European Structured Finance Servicers
• Unified Interest Rate Model Methodology for European Securitisations

These can be found on www.dbrs.com under Methodologies.

The sources of information used for this rating include historical performance data provided by DBAG, documents provided by the issuer, historical performance data of Portuguese RMBS mortgage portfolios, from Intex. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality. The information provided to us was subjected to a reasonableness review but has not been verified.

These ratings newly issued financial instruments.

This is the first DBRS rating on these financial instruments.

For additional information on this rating, please see the linking document which is located at http://www.dbrs.com/research/261103/linking-document-castilho-mortgages-no-1.pdf

For further information on DBRS’s historic default rates published by the European Securities and Markets Administration (“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 regulations only.

Initial Lead Analyst: Alastair Bigley
Initial Rating Date: 25/09/2013
Rating Committee Chair: Claire Mezzanotte
Lead Surveillance Analyst: Keith Gorman

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