DBRS Confirms Rating on TAGUS Sociedade de Titularização de Créditos, S.A (Aqua Mortgage No. 1)

DBRS Ratings Limited (DBRS) has today confirmed its rating of the Class A Mortgage-Backed Floating Rate Notes (the Class A notes) of TAGUS Sociedade de Titularização de Créditos, S.A (Aqua Mortgage No. 1) (the Issuer) at AA (high) (sf).

The confirmation of the rating of the Class A notes is based upon the following analytical considerations, as described more fully below:
-- Portfolio performance, in terms of delinquencies and defaults, as of the March 2016 payment date.
-- Updated portfolio default rate, loss given default (LGD) and expected loss assumptions for the remaining collateral pool.
-- Current available credit enhancement to the Class A notes to cover the expected losses at the AA (high) (sf) rating level.

The Issuer is a securitisation of Portuguese residential mortgage loans originated and serviced by Caixa Económica Montepio Geral (Montepio).

As per the March 2016 payment date, the 90+ delinquency ratio (excluding defaulted loans and written-off mortgage assets) stands at 1.52% of the performing balance of the portfolio. The gross cumulative default ratio (including write-off) steadily increased over the year, and is currently at 4.85% of the original balance.

Credit enhancement to the Class A notes is provided by subordination of the Class B notes and a Reserve Fund. Credit enhancement to the Class A notes (as a percentage of the performing balance of the portfolio) increased to 24.5% in March 2016.

The transaction benefits from a Reserve Fund available to cover losses and interest shortfalls on the Class A notes. The Reserve Fund is allowed to amortise if certain conditions defined in the legal documentation are met. As of March 2016, the Reserve Fund stands at the initial and target level of EUR 3.50 million.

Deutsche Bank AG, London branch is the Account Bank for the transaction. The DBRS private rating of Deutsche Bank AG, London branch complies with the Minimum Institution Rating given the rating assigned to the Class A notes, as described in the 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.

This can be found on www.dbrs.com at:
http://www.dbrs.com/about/methodologies

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology. A review of the transaction’s legal documents was not conducted as the 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.

For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to DBRS’s “The Effect of Sovereign Risk on Securitisations in the Euro Area” commentary on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include investor reports provided by Deutsche Bank AG, London branch and data from the European DataWarehouse GmbH.

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 24 April 2015, when DBRS confirmed the ratings of the Class A notes at AA (high) (sf).

The lead responsibilities for this transaction have been transferred to Antonio Di Marco.

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

To assess the impact of the 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 lifetime base case Probability of Default (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 mortgages for the Issuer are 7.83% and 11.99%, respectively. At the AA (high) (sf) rating level, the corresponding PD is 28.40% and the LGD is 26.19%.
-- 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 remain at AA (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A notes would be expected to remain at AA (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A notes would be expected to remain at AA (high) (sf).

Class A notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (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: Richard Hewitt
Initial Rating Date: 28 March 2011
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Antonio Di Marco
Rating Committee Chair: Quincy Tang

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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

-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Unified Interest Rate Model for European 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.