DBRS Confirms Rating on Tagus - Sociedade de Titularização de Créditos, S.A (Pelican Finance No. 1)

DBRS Ratings Limited (DBRS) has today confirmed its rating of the Class A Notes issued by Tagus - Sociedade de Titularização de Créditos, S.A. (Pelican Finance No. 1) (the Issuer) at A (sf).
The confirmation of the rating on the Class A Notes is based upon the following analytical considerations, as described more fully below:
-- Portfolio performance, in terms of defaults and level of delinquencies, as of 30 September 2015.
-- Actual default rate, recovery rate and expected losses are within DBRS’s expectations.
-- Current available credit enhancement for the Class A notes to cover the expected losses at the A (sf) rating level.
-- An amendment to the transaction signed on 6 November 2015, extending the revolving period.

Pelican Finance No. 1 is a securitisation of a portfolio of consumer and auto loan receivables originated and serviced by Caixa Económica Montepio Geral (Montepio) and Montepio Crédito – Instituição Financeira de Crédito, S.A. (Montepio Credito). The deal follows the Portuguese securitisation law and closed in May 2014. The structure included an 18-month revolving period which has been extended to November 2017. There are specific criteria and purchase termination events to mitigate the potential portfolio performance deterioration. To date, all of them have been satisfied.

The pool comprises fixed loans and floating loans and consists of personal loans (60.04%), loans to buy new cars (7.82%) and used cars (30.06%) and a small portion (2.08%) for other purposes.

The portfolio is performing in line with DBRS’s expectations. The 90+ delinquency ratio as a percentage of the performing balance of the portfolio slightly increased over the last six months, reaching 1.12% in September 2015. The gross cumulative default ratio as a percentage of the original portfolio increased to 0.76%, but it is still below DBRS’s base case default rate of 16.56%.

Credit enhancement for the Class A Notes consists of subordination of the Class B notes and non-amortising cash reserve. The credit enhancement for the Class A Notes (as a percentage of the outstanding performing balance of the portfolio) has been stable at 36%. The Class C notes were issued to fund the initial cash reserve of EUR 14.7 million. The cash reserve is available to pay senior items, interest and principal shortfall on the Class A Notes.

Deutsche Bank AG/London serves as account bank for the transaction. The DBRS private rating of Deutsche Bank AG/London is above the Minimum Institution Rating given the rating assigned to the Class A notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is the Master European Structured Finance Surveillance Methodology.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology. DBRS conducted a review of the Amendment Agreement, which spells out the amendment under consideration, along with the Noteholders Resolution. The other transaction legal documents have remained unchanged since the most recent rating action, and were not reviewed. An asset and a cash flow analysis were both conducted; however, because of the inclusion of a revolving period in the transaction, and no change in assumptions, the initial analysis based on worst-case replenishment criteria set forth in the transaction legal documents was assumed.

Other methodologies referenced in this transaction are listed at the end of this press release. This 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 the DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” found at http://www.dbrs.com/industries/bucket/id/10036/name/commentaries.

The sources of information used for this rating include information provided by The Royal Bank of Scotland plc, investor reports provided by Deutsche Bank AG and data from the European DataWarehouse. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not rely upon third-party due diligence in order to conduct its analysis. DBRS was not supplied with third-party assessments; however, this did not impact the rating analysis.

DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

The last rating action on this transaction took place on 13 May 2015, when DBRS confirmed the initial rating of A (sf) to the Class A notes.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):
-- DBRS expected a Base Case Probability of Default (PD) and Loss Given Default (LGD) for the pool based on a review of the transaction performance. 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 receivables are 16.56% and 67.33%, respectively.
-- The Risk Sensitivity overview below illustrates the ratings expected for the Class A Notes 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 for the Class A Notes would be expected to drop to BBB (sf), all else being equal. If the PD increases by 50% the rating for the Class A Notes would be expected to drop to BBB (sf), all else being equal. If both the LGD and PD increase by 50%, the rating of the Class A Notes would be expected to drop to B (high) (sf), all else being equal.

Class A Notes Risk Sensitivity:

• 25% increase in LGD, expected rating of BBB (high) (sf).
• 50% increase in LGD, expected rating of BBB (sf).
• 25% increase in PD, expected rating of BBB (high) (sf).
• 50% increase in PD, expected rating of BBB (sf).
• 25% increase in LGD and 25% increase in PD, expected rating of BBB (low) (sf).
• 25% increase in LGD and 50% increase in PD, expected rating of BB (sf).
• 50% increase in LGD and 25% increase in PD, expected rating of BB (sf).
• 50% increase in LGD and 50% increase in PD, expected rating of B (high) (sf).

For further information on DBRS 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: Alessio Pignataro
Initial Rating Date: 16 May 2014
Initial Rating Committee Chair: Chuck Weilamann

Lead Surveillance Analyst: Antonio Di Marco
Rating Committee Chair: Chuck Weilamann

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The rating methodologies and criteria used in the analysis of this transaction can be found at http://www.dbrs.com/about/methodologies and are as follows:

-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Unified Interest Rate Model for European Securitisations
-- Rating European Consumer and Commercial Asset-Backed Securitisations

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at http://www.dbrs.com/research/278375.