DBRS Confirms Rating on TAGUS – STC, S.A. (EnergyOn No. 1)

DBRS Ratings Limited (DBRS) has today confirmed its rating on the Class A1 notes and on the Interest Rate Swap (IRS) payments of TAGUS SOCIEDADE DE TITULARIZAÇÃO DE CRÉDITOS, S.A. (EnergyOn No. 1) (the Issuer) at BBB (high) (sf).

Based on the DBRS Portuguese Electricity Tariff methodology, the rating on the Class A1 notes is limited to a two-notch increase above the current local currency sovereign rating of the Republic of Portugal. DBRS’s Sovereign Group confirmed the Republic of Portugal’s Long-Term Foreign and Local Currency Issuer Ratings at BBB (low) with a Stable trend in May 2015 (see press release issued on 15 May 2015: “DBRS Confirms Republic of Portugal at BBB (low), Stable Trend”). In addition, the IRS payments to the Swap Counterparty are senior to the Class A1 notes in the priority of payments, and based on the DBRS Portuguese Electricity Tariff methodology, the rating of the IRS is also limited to a two-notch increase above the current local currency sovereign rating of the Republic of Portugal.

This is a static securitisation of Portuguese electricity tariff receivables assigned to the Issuer by EDP – Serviço Universal (EDP-SU). The transaction closed in March 2009.

Pursuant to the Portuguese Decree-law 29/2006, EDP-SU has the right to recover any amounts arising out of the difference between the costs of acquisition of electricity and the sale price of the respective electricity valued according to market prices. The source of funds for the payment of principal and interest on the Class A1 notes is the legally established right to receive, through the electricity tariffs, the amount of costs with the acquisition of electricity incurred by EDP-SU during 2007 and 2008 that has not yet been reflected into the electricity tariffs, including accrued interest.

The Class A1 notes are supported by subordination of the Class A2 and Class B notes. Credit enhancement for the Class A1 notes has been stable since the DBRS rating in April 2011, and it is currently at 1.75%. An Expenses Reserve funded with the proceeds of the Class B notes covers the transaction costs. The Expenses Reserve amounts to EUR 4.83 million.

At closing, the Issuer entered into a swap agreement with Deutsche Bank AG, London branch in order to mitigate its interest rate risk. Additionally, the swap agreement provides liquidity to the Issuer to pay interest due on the Class A1 notes for up to three consecutive interest periods. Deutsche Bank AG, London branch is the account bank and swap counterparty for the transaction. The DBRS private rating of Deutsche Bank AG, London branch is at least equal to the Minimum Institution Rating given the rating assigned to the Class A1 notes, as described in the DBRS Legal Criteria for European Structured Finance. Additionally, the DBRS private rating of Deutsche Bank AG, London branch acting as swap counterparty complies with the current DBRS Derivative 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.” DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology. Other methodologies referenced in this transaction are listed at the end of this press release and may be found at http://www.dbrs.com/about/methodologies.

The sources of information used for this rating include investor reports provided by Deutsche Bank AG, London branch. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not rely upon third-party due diligence in order to conduct its analysis; DBRS was not supplied with third-party assessments. However, this did not affect the rating analysis.

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 September 2014, when DBRS assigned the rating on the IRS payments at BBB (high) (sf).

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

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: Chuck Weilamann
Initial Rating Date: 8 April 2011
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Elisa Scalco
Rating Committee Chair: Diana Turner

DBRS Ratings Limited
1 Minster Court, 10th Floor
Mincing Lane
London
EC3R 7AA
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 and are as follows:

-- Legal Criteria for European Structured Finance Transactions.
-- Rating Portuguese Electricity Tariff Securitisations.
-- Master European Structured Finance Surveillance Methodology.
-- Derivative Criteria for European Structured Finance Transactions.
-- Operational Risk Assessment for European Structured Finance Servicers.
-- Unified Interest Rate Model for European Securitisations.

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.