DBRS Confirms Ratings of Sagres STC (Pelican Mortgages No. 4)

DBRS Ratings Limited (“DBRS”) has reviewed Pelican Mortgages No. 4 Notes issued by Sagres STC (the “Issuer”) and confirms the rating of the Class A Notes at A (sf).

Pelican Mortgages No. 4 is a securitisation of Portuguese residential mortgages (portfolio of EUR 1 billion at closing) originated and serviced by Montepio (fully owned by Montepio Geral Associacao Mutualista). The transaction closed in May 2008 and the mortgage pool is well-seasoned (over 8 years).

Confirmation of the ratings for the Class A Notes is based upon the following analytical consideration, as described more fully below:

• Portfolio performance, in terms of level of delinquencies and defaults, as of the 17 March 2014 payment date.
• Updated Portfolio Defaults, Loss Given Defaults and Expected Losses for the remaining pool.
• Current available credit enhancement to Class A Notes to cover the Expected Losses at the A (sf) rating level.

As of 17 March 2014, the current 90+ delinquency ratio as a percentage of the performing balance of the portfolio was 1.17% and the 180+ delinquency ratio was 0.98%. The cumulative default ratio (loans having more than 12 outstanding and unpaid monthly instalments) was 0.59% of the original collateral balance.

Credit enhancement to the Class A Notes consists of subordination of junior tranches (the sum of the current outstanding balance of those collateralised notes is EUR 773 million) and an amortising Cash Reserve Fund (EUR 23 million). The credit enhancement to the Class A Notes is currently 24.50%, up from 19.10% at the transaction close, due to deleveraging of the deal. The Reserve Fund has been initially funded at 2.3% of the initial balance of the collaterised Notes and is allowed to amortise, subject to a trigger and a EUR 10 million floor.

Citibank N.A./London Branch holds the Payment Account for the transaction. The DBRS private rating of Citibank N.A./London Branch complies with the threshold for the Account Bank given the rating assigned to the Class A Notes, as described in the DBRS Legal Criteria for European Structured Finance Transactions.

The Royal Bank of Scotland NV, London Branch (“RBS”) is the swap counterparty for the transaction and is privately rated by DBRS. Given the current rating assigned to the Class A Notes, RBS qualifies for the treatment contemplated by the framework described in the DBRS Derivative Criteria for European Structured Finance Transactions. However, RBS is in breach of the First Trigger Required Ratings as defined in the swap documentation. RBS has informed DBRS that it is their intention to extend the remedy period from 30 business days to 160 business days. The swap documentation does not include DBRS Rating Thresholds. As a result DBRS is relying on the defined First Trigger Required Ratings and Second Trigger Required Ratings for remedial actions following a downgrade of RBS and DBRS will monitor the outcome of these remedy actions.

Notes:
All figures are in EUR unless otherwise noted.

The principal methodology applicable is the Master European Structured Finance Surveillance Methodology. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.
This can be found on www.dbrs.com at:
http://www.dbrs.com/about/methodologies.

For a more detailed discussion of 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 information used for this rating include investor reports provided by Citibank N.A./London Branch and data from the European DataWarehouse. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

The last rating action on this transaction took place on 26 February 2013, when DBRS confirmed the rating of A (sf) to Class A Notes.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.

To assess the impact of the changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):
• DBRS expected a lifetime base case Probability of Default (PD) and Loss Given Default (LGD) for the pool based on a review of the current receivables. 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 mortgages for the Issuer are 8.10% and 22.57%, respectively. The corresponding levels at the A (sf) rating level are 22.01% and 36.56%.
• 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 Class A Notes would be expected to remain at A (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to remain at A (sf), assuming no change in the LGD. Furthermore, if both PD and LGD increase by 50%, the rating of the Class A Notes would be expected at remain at A (sf).

Class A Notes Risk Sensitivity:
• 25% increase in LGD, expected rating of A (sf)
• 50% increase in LGD, expected rating of A (sf)
• 25% increase in PD, expected rating of A (sf)
• 50% increase in PD, expected rating of A (sf)
• 25% increase in PD and 25% increase in LGD, expected rating of A (sf)
• 25% increase in PD and 50% increase in LGD, expected rating of A (sf)
• 50% increase in PD and 25% increase in LGD, expected rating of A (sf)
• 50% increase in PD and 50% increase in LGD, expected rating of A (sf)

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“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.

Initial Lead Analyst: Keith Gorman
Initial Rating Date: 24 February 2011
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Dylan Cissou
Rating Committee Chair: Claire Mezzanotte

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

The rating methodologies and criteria 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
• Master European Structured Finance Surveillance Methodology
• Unified Interest Rate Model for European Securitisations