DBRS Confirms Rating on the Class A Notes Issued by SAGRES – STC, S.A. (DOURO SME No. 2)

DBRS Ratings Limited (DBRS) has today confirmed its AA (sf) rating on the EUR 1,819,400,000.00 Class A notes issued by SAGRES – Sociedade de Titularização de Créditos, S.A. (DOURO SME No. 2) (the Issuer).

The transaction is a cash flow securitisation collateralised primarily by a portfolio of term loans, credit lines and commercial paper facilities originated by Banco BPI, S.A. (BPI; the Originator) to Portuguese corporates, small- and medium-sized enterprises (SMEs) and self-employed individuals.

The rating on the Class A notes addresses the timely payment of interest and the ultimate payment of principal payable on or before the Final Maturity Date in December 2039.

BPI acts as the Servicer for the Portfolio. Banco Comercial Português has acted as Back-up Servicer since its appointment on 22 March 2012.

The rating action reflects a surveillance review of the transaction, along with the following executed amendment (the Amendment):
-- Extension of the revolving period to December 2019 (from December 2018).
-- Class A notes interest rates based now on six-month Euribor (versus three-month Euribor prior to the Amendment).
-- Changes in replenishment criteria.

This transaction is still in its revolving period, after two different amendments of the initial amortisation period start date from March 2014 to March 2017 and from March 2017 to December 2018. The composition of the portfolio has not deteriorated since DBRS’s last rating action while the transaction performance is in line with DBRS’s expectations. As of the September 2016 payment date, the net default ratio as per the transaction definition was 4.72% (revolving period will end if this ratio breaches 7.00%).

The current level of credit enhancement available to the Class A notes is sufficient to cover the expected losses assumed in line with its AA (sf) rating level.

The index of the Class A notes interest rate has been amended from three-month Euribor to six-month Euribor. This decision is in line with BPI no longer granting loans indexed to three-month Euribor. Portfolio composition as of 31 August 2016 shows 54.24% of the outstanding balance of the floating-rate loans in the pool indexed to six-month Euribor, in comparison with 15.91% of the preliminary portfolio at closing (30 September 2010).

Changes to the replenishment criteria include:
-- An increase in concentration limits regarding top borrowers. For instance, 70 of the largest borrowers may now account for up to 40% of the aggregate principal outstanding balance of the portfolio, in comparison with 35% prior to the Amendment, and higher above the current 29.84%.
-- Minimum of receivables paying interest calculated on the basis of three-month Euribor refers now to six-month Euribor (30% minimum maintained).
-- Limit on the weighted-average life of the receivables has increased to 48 months (from 36).
-- Outstanding balance of receivables paying fixed interest rate is limited to 10% (from 8%), with a weighted-average fixed rate of minimum 1.5% (from 2.5%).

DBRS has been supplied with updated historical performance information from the Originator. The portfolio annualised probability of default (PD) has been maintained at 2.78%.

Citibank Europe plc – Netherlands Branch holds the Issuer Account Bank for the transaction. The DBRS private rating of Citibank Europe plc – Netherlands Branch complies with 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 “Rating CLOs Backed by Loans to European SMEs”.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

Due to the inclusion of a revolving period in the transaction, the analysis is based on the worst-case replenishment criteria set forth in the transaction legal documents.

DBRS conducted a review of the Amendment agreement. The other transaction legal documents have remained unchanged since the most recent rating action and were not reviewed.

Other methodologies referenced in this transaction are listed at the end of this press release.

These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies

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 the parties involved in the rating, including but not limited to the Originator, the Issuer and the Arranger (BNP Paribas, London Branch).

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 made available to it for the purposes of providing these rating to have been 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 1 August 2016, when DBRS upgraded the rating on the Class A notes to AA (sf) from A (sf).

Information regarding DBRS ratings, including definitions, policies and methodologies is available at 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):
-- Probability of Default Rates Used: Base Case PD of 2.78%, a 10% and 20% increase on the Base Case PD.
-- Recovery Rates Used: Base Case Recovery Rates, corresponding to an average recovery rate of 17.61% at the AA (sf) stress level, a 10% and 20% decrease in the Base Case Recovery Rates.

DBRS concludes that a hypothetical increase of the base PD by 20%, ceteris paribus, would produce model results suggesting a confirmation of the Class A notes at AA (sf). A hypothetical decrease of the Recovery Rate by 20% would also produce model results suggesting a confirmation of the Class A notes at AA (sf). A scenario combining both a hypothetical increase in the PD by 10% and a hypothetical decrease in the Recovery Rate by 10% would also lead to model results suggesting a confirmation of the current rating of the Class A notes.

For further information on DBRS’s historic 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 regulations only.

Lead Surveillance Analyst: Alfonso Candelas
Rating Committee Chair: Jerry van Koolbergen
Initial Rating Date: 11 February 2011

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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
-- Rating CLOs Backed by Loans to European SMEs
-- Rating CLOs and CDOs of Large Corporate Credit
-- Cash Flow Assumptions for Corporate Credit Securitizations
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Unified Interest Rate Model for European Securitisations
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda

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.