DBRS Confirms Ratings on Three Pelican Mortgages Transactions

DBRS Ratings Limited (DBRS) confirmed its ratings on three Portuguese Residential Mortgage-Backed Securities transactions (the 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 confirmations follow an annual review of the Transactions and are based on the following analytical considerations:
-- The overall portfolios’ performance, in terms of level of delinquencies and defaults, as of the March 2018 payment date;
-- Updated default rates, loss given defaults (LGD) and expected loss assumptions for the remaining collateral pools;
-- The current available credit enhancement to the rated notes to cover expected losses assumed in line with their respective rating levels.

The ratings address the timely payment of interest and ultimate payment of principal payable on or before the relevant Final Legal Maturity Date.

The Transactions are Portuguese securitisations collateralised by portfolios of residential mortgage loans granted by Caixa Económica Montepio Geral (Montepio). The Notes have been issued under the Sociedade de Titularização de Créditos (“STC”) regime.

PORTFOLIO PERFORMANCE
As of the March 2018 payment date, Pelican Mortgages No. 4 one-to-two months, two-to-three months and three-to-twelve months delinquencies were 0.1%, 0.03% and 0.2% of the outstanding principal balance of the portfolio, respectively, while defaulted loans (defined as more than twelve months in arrears and not classified as written-off) were 0.4%. Gross cumulative deemed principal losses, as a percentage of the original portfolio balance, were 1.2% with cumulative recoveries of 44.4%.

For Pelican Mortgages No. 5, one-to-two months, two-to-three months and three-to-twelve months delinquencies were 0.1%, 0.1% and 0.3% of the outstanding principal balance of the portfolio, respectively, while defaulted loans (defined as more than twelve months in arrears and not classified as written-off) were 0.5%. Gross cumulative deemed principal losses, as a percentage of the original portfolio balance, were 1.0% with cumulative recoveries of 37.4%.

For Pelican Mortgages No. 6, one-to-two months, two-to-three months and three-to-twelve months delinquencies represented 0.5%, 0.3% and 1.1% of the outstanding principal balance of the portfolio, respectively, while defaulted loans (defined as more than twelve months in arrears and not classified as written-off) represented 0.9%. Gross cumulative deemed principal losses represented 4.6% of the original portfolio balance, with cumulative recoveries of 27.4%.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the outstanding portfolios and updated its base case probability of default (PD) and LGD assumptions as follows:
-- Pelican Mortgages No. 4: PD of 9.5% and LGD of 15.8%;
-- Pelican Mortgages No. 5: PD of 8.4% and LGD of 14.2%;
-- Pelican Mortgages No. 6: PD of 11.2% and LGD of 26.6%.

CREDIT ENHANCEMENT
Credit enhancement to the rated notes is provided by the subordination of the junior obligations and a cash reserve. As of March 2018, credit enhancement to the Pelican Mortgages No. 4 Class A Notes was 24.3%, 34.1% to the Pelican Mortgages No. 5 Class A Notes, and 38.7% to the Pelican Mortgages No. 6 Class A Notes.

Citibank N.A, London Branch acts as the Accounts Bank for all the 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 Credit Agricole Corporate & Investment Bank acts as the Swap Counterparty for Pelican Mortgages No. 5. 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 transactions’ legal documents was not conducted as the legal 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 “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf.

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 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 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 these ratings 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 the Transactions took place on 13 April 2017, when DBRS confirmed its rating on the Class A Notes of Pelican Mortgages No. 4 at A (high) (sf), confirmed its rating on the Class A Notes of Pelican Mortgages No. 5 at AA (high) (sf), and confirmed its rating on the Class A Notes of Pelican Mortgages No. 6 at AA (high) (sf).

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 PD and LGD for the portfolio 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.

-- For Pelican Mortgages No. 4, the Base Case PD and LGD of the current pool of receivables are 9.5% and 15.8%, respectively. At the A (high) (sf) rating level, the corresponding PD is 25.7% and the LGD is 31.5%.

-- For Pelican Mortgages No. 5, the Base Case PD and LGD of the current pool of receivables are 8.4% and 14.2%, respectively. At the AA (high) (sf) rating level, the corresponding PD is 29.5% and the LGD is 30.7%.

-- For Pelican Mortgages No. 6 the Base Case PD and LGD of the current pool of receivables are 11.2% and 26.6%, respectively. At the AA (high) (sf) rating level, the corresponding PD is 35.6% and the LGD is 44.5%.

-- 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 assumptions. For example, if the LGD increases by 50%, the rating of the Pelican Mortgages No. 4 Class A Notes would be expected to be downgraded to BB (high) (sf), the rating of the Pelican Mortgages No. 5 Class A Notes would be expected to remain at AA (high) (sf) and the rating of the Pelican Mortgages No. 6 Class A Notes would be expected to remain at AA (high) (sf), all else being equal. If the PD increases by 50%, the rating of the Pelican Mortgages No. 4 Class A Notes would be expected to be downgraded to BB (high) (sf), the rating of the Pelican Mortgages No. 5 Class A Notes would be expected to remain at AA (high) (sf) and the rating of the Pelican Mortgages No. 6 Class A Notes would be expected to remain at AA (high) (sf), all else being equal. Furthermore, if both the PD and LGD increase by 50%, the rating of the Pelican Mortgages No. 4 Class A Notes would be expected to be downgraded to BB, the rating of the Pelican Mortgages No. 5 Class A Notes would be expected to remain at AA (high) (sf) and the rating of the Pelican Mortgages No. 6 Class A Notes would be expected to be downgraded to AA (sf), all else being equal.

Pelican Mortgages No. 4 - Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD, expected rating of BBB (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD, expected rating of BB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (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)
-- 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, 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)
-- 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, 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 (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, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 24 February 2011 (Pelican Mortgages No. 4 and Pelican Mortgages No. 5); 5 March 2012 (Pelican Mortgages No. 6)

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
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- 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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.