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

DBRS Ratings Limited (DBRS) has today confirmed the rating on the Class A notes issued by TAGUS Sociedade de Titularização de Créditos, S.A (Aqua Mortgage No. 1) (the Issuer) at AA (high) (sf).

Today’s rating action follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies and defaults, as of the March 2017 payment date.
-- Updated portfolio default rate, loss given default (LGD) and expected loss assumptions for the remaining collateral pool.
-- Current available credit enhancement for the Class A Notes to cover the expected losses at the AA (high) (sf) rating level.
-- Ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested.

The rating on the Class A Notes addresses timely payment of interest and ultimate payment of principal by the legal maturity date falling in December 2063.

Aqua Mortgage No. 1 is a securitisation of Portuguese first lien residential mortgage loans originated by Finibanco S.A. (acquired by Caixa Económica Montepio Geral (Montepio) in 2011) and currently serviced by Montepio. The Notes have been issued under the Sociedade de Titularização de Créditos regime. The transaction closed in December 2008 and DBRS assigned a rating in March 2011. The deal had a three-year revolving period which terminated in January 2011.

As of 15 March 2017, the balance of the Class A Notes was EUR 93.3 million, the balance of the Class B Notes was EUR 28.6 million and the balance of the Class C Notes was 3.5 million. The outstanding EUR 123.8 million securitised portfolio (excluding written-off receivables) consists of first-ranking loans over residential properties mainly located in Lisbon (19.0%), Porto (17.0%) and Faro (15.5%).

PORTFOLIO PERFORMANCE
From March 2016 to March 2017, the loans more than 90 days delinquent (excluding defaulted loans and written-off mortgage assets), as a percentage of the outstanding portfolio collateral balance, has increased slightly to 1.7% from 1.5% last year. Gross cumulative defaulted loans, as a percentage of the original portfolio and cumulative transferred receivables, have increased to 11.0% from 10.5%, with cumulative recoveries of 62.3%.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the outstanding pool and updated the probability of default (PD) and LGD assumptions on the remaining collateral pool. At the AA (high) (sf) rating level, the PD and LGD assumptions including the sovereign adjustment are 26.1% and 27.4%, respectively.

CREDIT ENHANCEMENT
As of 15 March 2017, credit enhancement (CE) available to the Class A Notes has increased to 27.5% from 24.5% in March 2016 as the transaction continues to repay. The source of CE is provided through the subordination of the Class B and Class C Notes and the Cash Reserve.

The Cash Reserve is currently at its target amount of EUR 3.5 million and will start amortise when its balance is higher than 3.0% of the outstanding balance of the Class A and Class B Notes and certain conditions are met. The target level will be the higher of EUR 1.2 million and 3% of the outstanding pool.

Deutsche Bank AG, London Branch acts as 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 DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: “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.

A review of the transaction legal documents was not conducted as the legal 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.

These 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 DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

The sources of data and information used for this rating include investors report provided by Deutsche Bank AG, London Branch, loan-by-loan data from the European DataWarehouse GmbH and information provided by Montepio.

DBRS did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial rating DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

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

DBRS does not audit or independently verify the data or the information it receives in connection with the rating process.

The last rating action on this transaction took place on 22 April 2016 when DBRS confirmed the rating of the Class A Notes at AA (high) (sf).

The lead analyst responsibilities for this transaction have been transferred to Joana Seara da Costa.

Information regarding DBRS ratings, including definitions, policies and methodologies, is 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 with the parameters used to determine the rating (“Base Case”):

-- The base case PD and LGD of the current pool of mortgages for the Issuer are 6.6% and 12.1%, respectively. At the AA (high) (sf) rating level, the corresponding PD is 26.1% and the LGD is 27.4%.
-- 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 for 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 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 regulations only.

Lead Analyst: Joana Seara da Costa, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 28 March 2011

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960

The rating methodologies 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