DBRS Confirms Ratings on Three Pelican Mortgages Transactions

DBRS Ratings Limited (DBRS) has today confirmed the following ratings on three Portuguese Residential Mortgage-Backed Securities (RMBS) transactions as follows:

Sagres STC (Pelican Mortgages No. 4):
-- Class A Notes confirmed at A (high) (sf)

Sagres STC (Pelican Mortgages No. 5):
-- Class A Notes confirmed at AA (high) (sf)

Sagres STC (Pelican Mortgages No. 6):
-- Class A Notes confirmed at AA (high) (sf)

The above-mentioned ratings address the timely payment of interest and the ultimate payment of principal on or before the relevant legal final maturity date.

Today’s rating actions reflect an annual review of the transactions and are based on the following analytical considerations:

-- Portfolio performance in terms of delinquencies, defaults and losses as of March 2017.
-- Portfolio default (PD) rate, loss given default (LGD) and expected loss assumptions for the remaining collateral pools.
-- The ability of the transactions to withstand stressed cash flow assumptions and repay investors according to the terms and conditions of the Notes.
-- The credit enhancement (CE) available to the rated notes to cover the expected losses at their respective rating levels.

All three transactions are securitisations of Portuguese first-lien residential mortgage loans originated and serviced by Caixa Económica Montepio Geral (currently rated BB by DBRS). The Notes have been issued under the Sociedade de Titularização de Créditos regime.

PORTFOLIO PERFORMANCE
As of March 2017 payment date, 90+ delinquencies of Pelican Mortgages No. 4 were 0.3% of the portfolio’s outstanding balance (excluding written-off loans) and defaults were 1.0%. Gross cumulative deemed principal losses, as a percentage of the original portfolio balance, were 1.1% with cumulative recoveries of 38.2%.

For Pelican Mortgages No. 5, 90+ delinquencies were 0.5% of the portfolio outstanding balance (excluding written-off loans) as of the March 2017 payment date, and defaults were 0.9%. Gross cumulative deemed principal losses, as a percentage of the original portfolio balance, were 0.8% with cumulative recoveries of 36.1%.

For Pelican Mortgages No. 6, 90+ delinquencies were 1.6% of the portfolio outstanding balance (excluding written-off loans) as of the March 2017 payment date, and defaults were 3.7%. Gross cumulative deemed principal losses, as a percentage of the original portfolio balance, were 3.9% with cumulative recoveries of 21.3%.

PORTFOLIO ASSUMPTIONS
DBRS has maintained the PD and LGD assumptions on the remaining collateral pools for all three transactions. At the base case B (sf) level, the PD and LGD are 10.1% and 18.0%, respectively, for Pelican Mortgages No. 4; 8.7% and 15.9%, respectively, for Pelican Mortgages No. 5; and 12.2% and 28.6%, respectively for Pelican Mortgages No. 6.

CREDIT ENHANCEMENT
For all three transactions, the CE available to the rated notes consists of subordination of junior notes and the cash reserve.

As of the March 2017 payment date, the CE available to each class of rated notes was 24.3% for the Pelican Mortgages No. 4 Class A Notes; 34.1% for the Pelican Mortgages No. 5 Class A Notes; and 36.1% for the Pelican Mortgages No. 6 Class A Notes.

Citibank N.A, London Branch acts as the Account Bank for all the three transactions. The DBRS private rating of Citibank N.A, London Branch complies with the Minimum Institution Rating given the ratings assigned to the rated notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

The Royal Bank of Scotland NV, London Branch acts as the Hedge Counterparty for Pelican Mortgages No. 4 and Crédit Agricole Corporate & Investment Bank acts as the Swap Counterparty for Pelican Mortgages No. 6. The DBRS private rating for both entities meets the rating requirement given the rating assigned to the senior notes, as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is “Master European Structured Finance Surveillance Methodology.”

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

A review of the transaction legal documents was not conducted as the documents have remained unchanged since the most recent rating actions.

Other methodologies referenced in these transactions 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 these ratings include investor reports provided by Citibank N.A., London Branch and loan-by-loan data from European Data Warehouse GmbH.

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

At the time of the initial ratings, 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 information it receives in connection with the rating process.

The last rating action on Pelican Mortgages No. 4 took place on 19 April 2016, when DBRS upgraded the rating on the Class A Notes to A (high) (sf) from A (sf) and removed the Under Review with Positive Implications status. The last rating action on Pelican Mortgages No. 5 took place on 19 April 2016, when DBRS confirmed the rating on the Class A Notes at AA (high) (sf). The last rating action on Pelican Mortgages No. 6 took place on 22 April 2016, when DBRS upgraded the rating on the Class A Notes to AA (high) (sf) from AA (sf).

The lead analyst responsibilities for Pelican Mortgages No. 4 and Pelican Mortgages No. 5 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 to the parameters used to determine the ratings (the Base Case):

-- For Pelican Mortgages No. 4, at the A (high) (sf) rating level, the Base Case PD and LGD assumptions for the collateral pool are 26.9% and 33.8%, respectively.

-- For Pelican Mortgages No. 5, at the AA (high) (sf) rating level, the Base Case PD and LGD assumptions for the collateral pool are 30.2% and 32.8%, respectively.

-- For Pelican Mortgages No. 6, at the AA (high) (sf) rating level, the Base Case PD and LGD assumptions for the collateral pool are 37.6% and 46.0%, respectively.

-- The Risk Sensitivity below illustrates the ratings expected for the rated 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 on the Pelican Mortgages No. 4 Class A Notes would be expected to decrease to BBB (low) (sf), all else being equal. If the PD increases by 50%, the rating on the Pelican Mortgages No. 4 Class A Notes would be expected to decrease to BBB (sf), all else being equal. Furthermore, if both the PD and the LGD increase by 50%, the rating on the Pelican Mortgages No. 4 Class A Notes would be expected to decrease to BB (sf), all else being equal.

Pelican Mortgages No. 4 - Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in LGD, expected rating of BBB (low) (sf)
-- 25% increase in PD, expected rating of BBB (high) (sf)
-- 50% increase in PD, expected rating of BBB (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (sf)

Pelican Mortgages No. 5 - 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)

Pelican Mortgages No. 6 - 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.

For Pelican Mortgages No. 4
Lead Analyst: Joana Seara Da Costa, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 24 February 2011

For Pelican Mortgages No. 5
Lead Analyst: Joana Seara Da Costa, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 24 February 2011

For Pelican Mortgages No. 6
Lead Analyst: Joana Seara Da Costa, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 5 March 2012

DBRS Ratings Limited
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United Kingdom
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
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Operational Risk Assessment for European Structured Finance Servicers
-- Unified Interest Rate Model for European Securitisations
-- Derivative Criteria for European Structured Finance Transactions

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.