DBRS Confirms Ratings of Sagres STC (Pelican Mortgages No. 5)

DBRS Ratings Limited (DBRS) has today confirmed its rating of the Class A Notes issued by Sagres STC (Pelican Mortgages No. 5 or the Issuer) at AA (high) (sf).

The confirmation of the rating of the Class A Notes is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies and defaults, as of the 16 March 2015 payment date.
-- Updated portfolio default rate, loss given default and expected loss assumptions for the remaining collateral pool.
-- Incorporating 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.

Pelican Mortgages No. 5 is a securitisation of Portuguese residential mortgages originated and serviced by Caixa Económica Montepio Geral (Montepio). This is the fifth transaction of pass-through mortgage-backed notes originated by Montepio back in 2009.

The portfolio is performing in line with DBRS’s expectation. The current 90+ delinquency ratio as a percentage of the performing balance of the portfolio was 1.11% in March 2015 (almost stable from 0.97% in March 2014). The cumulative default ratio (as a percentage of the original balance) slightly increased during the year, reaching 0.73% in March 2015, but is still below DBRS’s base-case default rate of 7.22%.

Credit enhancement to the Class A Notes is provided by subordination of Classes B, C and D as well as an amortising Cash Reserve Fund (EUR 23 million). The credit enhancement to the Class A Notes is currently 34.73%, up from 33.76% in March 2014.

The Reserve Fund 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 certain conditions are satisfied down to a EUR 10 million floor. As of March 2015, the cash reserve stands at the initial and target level of EUR 23 million.

Citibank, National Association, London Branch (Citibank, N.A. London) holds the Payment Account for the transaction. DBRS’s private rating of Citibank, N.A. London is at least equal to the Minimum Institution Rating given the Class A Notes rating, as described in the DBRS “Legal Criteria for European Structured Finance Transactions.”

Crédit Agricole Corporate and Investment Bank is the swap counterparty for the transaction and its private rating is above the Minimum Institution Rating given the rating of Class A Notes, as described in the DBRS “Derivative Criteria for European Structured Finance Transactions.” The swap documentation contains rating triggers related to collateralisation, replacement or the inclusion of an appropriately rated guarantor if breached, consistent with DBRS’s “Derivative Criteria for European Structured Transactions.”

Notes:
All figures are in euros unless otherwise noted.

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

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 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 28 April 2014, when DBRS confirmed the rating of AA (high) (sf) on the Class A Notes.

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 with 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 7.22% and 21.06%, respectively. The corresponding levels at the AA (high) (sf) rating level are 27.09% and 38.43%.
-- 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 (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 remain at AA (high) (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 (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 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 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: Vito Natale
Rating Committee Chair: Diana Turner

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
--Unified Interest Rate Model for European Securitisations