DBRS Confirms Ratings of Nostrum Mortgages No. 2

DBRS Ratings Limited (“DBRS”) has reviewed Nostrum Mortgages No. 2 Notes issued by TAGUS - Sociedade de Titularização de Créditos, S.A. (the “Issuer”) and confirms the rating of the Class A Notes at AA (sf).

Nostrum Mortgages No. 2 is a securitisation of Portuguese residential mortgages (portfolio of EUR 5.2 billion at closing) originated and serviced by Caixa Geral de Depositos (“CGD”), the largest financial institution in Portugal. The transaction closed in November 2010 and the mortgage pool is well-seasoned (over seven 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 20 February 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 AA (sf) rating level.

As of the 20 February 2014 payment date, the current 90+ delinquency ratio as a percentage of the current balance of the portfolio was 0.86% and the 180+ delinquency ratio was 0.49%. The cumulative default ratio (loans having more than 12 outstanding and unpaid monthly instalments) was 2.24% of the original collateral balance.

The transaction allows for permitted variations and substitutions but this is limited to a number of constraints both on a loan and portfolio level. Variations were 13.03% of the original portfolio (below the threshold at 25%) and substitutions were 1.22% (below the threshold at 20%).

Credit enhancement for the Class A Notes (as a percentage of the performing collateral balance) consists of subordination of the Class B Notes (28.88%) and a Cash Reserve Fund (1.22%) initially funded via the issuance of the Class C Notes. The Cash Reserve Fund was equal to EUR 56.54 million, below the target amount of EUR 80.18 million.

Banco Santander SA holds the Treasury Account for the transaction. The DBRS public rating of Banco Santander SA 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.

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 Deutsche Bank AG/London (the Agent Bank) 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 AA (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 10.31% and 21.20%, respectively. The corresponding levels at the AA (sf) rating level are 30.50% and 11.33%.
• 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 AA (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 AA (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 decrease at AA (low) (sf).

Class A Notes Risk Sensitivity:
• 25% increase in LGD, expected rating of AA (sf)
• 50% increase in LGD, expected rating of AA (sf)
• 25% increase in PD, expected rating of AA (sf)
• 50% increase in PD, expected rating of AA (sf)
• 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
• 25% increase in PD and 50% increase in LGD, expected rating of AA (sf)
• 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
• 50% increase in PD and 50% increase in LGD, expected rating of AA (low) (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: 04 May 2012
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Dylan Cissou
Rating Committee Chair: Quincy Tang

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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