DBRS Confirms Rating on Bocage Mortgages No. 2

DBRS Ratings Limited (DBRS) has today confirmed its rating of the Class A Notes of SAGRES – Sociedade de Titularização de Créditos, S.A. Bocage Mortgages No. 2 (the Issuer) at AA (high) (sf).

The confirmation of the rating of the Class A Notes is based upon the following analytical considerations:
-- Portfolio performance, in terms of delinquencies and defaults, as of the January 2015 payment date.
-- Updated portfolio default rate, loss given default and expected loss assumptions for the remaining collateral pool.
-- Incorporation of a sovereign-related stress component to address the impact of macroeconomic variables on collateral performance given the long-term foreign and local currency rating of BBB (low) for the Republic of Portugal.
-- Current available credit enhancement for the Class A Notes to cover the expected losses at the AA (high) (sf) rating level.

Bocage Mortgages No. 2 is a securitisation of first lien mortgage loans secured by residential properties in Portugal. The underlying portfolio was originated and is serviced by Barclays Bank plc, through its Portuguese branch. The transaction follows the Sociedade de Titularização de Créditos arrangement under the Portuguese Securitisation Law and closed in December 2009.

The mortgage pool is well-seasoned (over eight years) and quite granular with 14,021 loans and the 20 largest borrowers account for only 1.24% of the current portfolio. Approximately 32% of the current pool was originated in 2006 and 2007.

The portfolio is performing in line with DBRS’s expectations. As of the January 2015 payment date, the 90+ delinquency ratio (excluding defaulted loans) as a percentage of the performing balance of the portfolio was 0.79% and has been slightly increasing from 0.59% in January 2014. The gross cumulative default ratio increased to 3.07% over the year, but it is still below DBRS’s base case portfolio default rate of 4.48%.

The Class A Notes are supported by the Class B Notes and an amortising Cash Reserve (currently equal to 2.32% of the outstanding principal balance of the Class A Notes). The credit enhancement for the Class A Notes increased to 16.82% in January 2015, up from 15.76% in January 2014. This has been the result of the amortisation of the Class A Notes.

The Cash Reserve is available to protect the Class A Notes against both interest and principal shortfalls on an ongoing basis. It is allowed to amortise over the life of the transaction (if a certain test is satisfied), subject to the absolute floor of EUR 9.64 million. The Cash Reserve currently stands at EUR 18.74 million, i.e. below the target level of EUR 19.29 million.

Citibank N.A., London branch is the Account Bank for this transaction. The DBRS private rating of Citibank N.A., London branch is at least equal to the Minimum Institution Rating 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 euros 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’s “The Effect of Sovereign Risk on Securitisations in the Euro Area” commentary 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 12 March 2015, when DBRS confirmed the ratings of the Class A Notes at AA (high) (sf).

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

To assess the impact of 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 4.48% and 12.69%, respectively. At the AA (high) (sf) rating level, the corresponding PD is 24.19% and the LGD is 27.05%.
-- 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 remain at AA (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A Notes would be expected to fall to 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 to decrease to AA (sf).

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)
-- 50% increase in PD, expected rating of AA (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 and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (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: 18 February 2010
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Elisa Scalco
Rating Committee Chair: Quincy Tang

DBRS Ratings Limited
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United Kingdom

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
Unified Interest Rate Model for European Securitisations