DBRS Confirms Rating on Class A Notes Issued by Tagus - Sociedade de Titularização de Créditos, S.A. (Pelican Finance No. 1)

DBRS Ratings Limited (DBRS) confirmed its A (sf) rating on the Class A Notes issued by Tagus - Sociedade de Titularização de Créditos, S.A. (Pelican Finance No. 1) (the Issuer or Pelican Finance No. 1).

The rating addresses the timely payment of interest and ultimate payment of principal on or before the final legal maturity date in December 2028.

The rating action follows an annual review of the transaction and is based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies, defaults and losses.
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the A (sf) rating level.

Pelican Finance No. 1 is a securitisation collateralised by a portfolio of consumer and auto loan receivables granted by Caixa Económica Montepio Geral and Montepio Crédito – Instituição Financeira de Crédito, S.A. to individuals residing in Portugal. The transaction closed in May 2014 and had a 42-month revolving period, during which additional loans were purchased subject to certain conditions and limitations. The revolving period ended on the November 2017 payment date.

PORTFOLIO PERFORMANCE
As of the October 2018 payment date, one- to two-month and two- to three-month delinquencies represented 1.0% and 0.5% of the portfolio balance, respectively, while three- to six-month delinquencies represented 0.7%. The gross cumulative default ratio, calculated based on the principal outstanding balance of loans in arrears by six months or more and written-off loans, was 3.4%.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 15.9% and 66.0%, respectively.

CREDIT ENHANCEMENT
As of the October 2018 payment date, credit enhancement to the Class A Notes was 45.2%, up from 36.0% at the DBRS initial rating. Credit enhancement is provided by subordination of the junior obligations and the cash reserve account.

The transaction benefits from a non-amortising cash reserve account, currently at its target level of EUR 14.7 million. The cash reserve account is available to cover senior expenses, missed interest payments on the Class A Notes and cure the Class A principal deficiency ledger.

Based on the DBRS private rating of Deutsche Bank AG, London Branch (DB London), the downgrade provisions outlined in the transaction documents, and the transaction structural mitigants, DBRS considers the risk arising from the exposure to DB London to be consistent with 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 the “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 “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 this rating include investor reports provided by DB London (the Transaction Manager) and loan-level 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 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 purpose 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 8 November 2017, when DBRS confirmed the rating of the Class A Notes.

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 with the parameters used to determine the rating (the “Base Case”):

-- DBRS expected a lifetime base case PD and LGD for the pool 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.
-- The base case PD and LGD of the current pool of loans for the Issuer are 15.9% and 66.0%, respectively.
-- 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 decrease to BBB (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to decrease to BBB (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 decrease to BB (sf).

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 BBB (high) (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 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 and US regulations only.

Lead Analyst: Joana Seara da Costa, Assistant Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 16 May 2014

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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
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Interest Rate Stresses 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.

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