DBRS Confirms Rating on Class A Notes Issued by Silk Finance No. 4

DBRS Ratings Limited (DBRS) has today confirmed its A (high) (sf) rating on the Class A Asset-Backed Fixed Rate Securitisation Notes (the Class A notes) issued by TAGUS – Sociedade de Titularização de Créditos, S.A. (Silk Finance No.4) (the Issuer) following an annual review of the transaction.

The above-mentioned rating action is based on the following analytical considerations:
-- No Early Amortisation Events have occurred;
-- The overall portfolio performance as of the July 2017 payment date, with regard to low levels of delinquencies and cumulative net losses;
-- The current available credit enhancement (CE) to the Class A notes to cover expected losses assumed in line with the A (high) (sf) rating level.

The rating on the Class A notes addresses the timely payment of interest and ultimate payment of principal payable on or before the Final Legal Maturity Date in January 2031.

The Issuer is a securitisation collateralised by a portfolio of vehicle loans (90.0%), leases (3.9%) and long-term rentals (6.1%) granted by Banco Santander Consumer Portugal S.A. (BSCP) to Portuguese individuals and companies. The residual value component of the lease agreements is not securitised.

REVOLVING PERIOD
The transaction closed in November 2015 and includes a revolving period scheduled to end in January 2019, during which the Issuer has the option to purchase new receivables subject to certain conditions and limitations. The revolving period will prematurely end upon the occurrence of an Early Amortisation Event.

PORTFOLIO PERFORMANCE
As of the July 2017 payment date, receivables with one and two instalments in arrears represented 0.5% and 0.4% of the principal outstanding balance of the portfolio, respectively, while Delinquent Receivables (defined as more than three months in arrears) were 0.3%. The cumulative gross default ratio, as a percentage of the original portfolio and cumulative transferred receivables, was 0.01%, with cumulative recoveries of 25.4%.

CREDIT ENHANCEMENT
CE to the Class A notes has been stable at 17.2% since November 2015 and is provided by the subordination of Class B and Class C notes and the Reserve Account.

The Reserve Account was funded at closing with the proceeds from the issuance of Class C notes and is available to cover senior expenses, missed interest payments on the Class A notes and to cure the Class A Principal Deficiency Ledger. The reserve fund is currently at its target level of EUR 3.7 million and, following the end of the revolving period, it will amortise to a target amount equal to 1.21% of the Class A and Class B notes balance, subject to a floor of EUR 1.83 million.

BNP Paribas Securities Services SCA, London Branch is the Accounts Bank for the transaction. DBRS’s private rating on BNP Paribas Securities Services SCA, 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 surveillance section of 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 investor reports provided by Deutsche Bank AG, London Branch (the Transaction Manager), servicer reports provided by BSCP and loan-by-loan data from the European DataWarehouse GmbH.

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

At the time of the initial rating, DBRS was 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 this transaction took place on 16 August 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.

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 ratings, 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 portfolio based on a review of the current assets and the transaction’s replenishment criteria. 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 5.0% and 73.6%, respectively, excluding sovereign stress.

-- The Risk Sensitivity below illustrates the ratings expected for Class A notes if the PD and LGD increase by a certain percentage over the base case assumptions. For example, if the LGD increases by 50%, the rating of Class A notes would be expected to decrease to BBB (high) (sf), all else being equal. If the PD increases by 50%, the rating of Class A notes would be expected to decrease to BBB (sf), all else being equal. Furthermore, if both the PD and LGD increase by 50%, the rating of Class A notes would be expected to decrease to BB (sf), all else being equal.

Class A notes risk sensitivity:
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD, expected rating of A (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD, expected rating of BBB (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)

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 and US regulations only.

Lead Analyst: Joana Seara da Costa, Senior Financial Analyst
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date: 17 November 2015

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.

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

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.