DBRS Confirms Rating on the Class A Notes Issued by SAGRES – STC, S.A. (Douro SME No. 2)

DBRS Ratings Limited (DBRS) has today confirmed its A (sf) rating on the €1,819,400,000.00 Class A notes issued by Sagres Sociedade de Titularização de Créditos, S.A. (Douro SME No. 2) (the Issuer).

The transaction is a cash flow securitisation collateralised primarily by a portfolio of term loans, credit lines and commercial paper facilities originated by Banco BPI, S.A. (BPI) (the Originator) to Portuguese corporates, small and medium-sized enterprises (SMEs) and self-employed individuals.

The rating on the Class A notes addresses the timely payment of interest and the ultimate payment of principal payable on or before the Final Maturity Date in December 2039.

BPI acts as the Servicer for the Portfolio. Banco Comercial Português has acted as Back-up Servicer since its appointment on 22 March 2012.

The rating action reflects a surveillance review of the transaction, along with the following executed amendments:
-- Extension of the revolving period to December 2018 (from March 2017).
-- Provisioning mechanism changes.
-- Changes in replenishment criteria.

This transaction is still in its revolving period, after an amendment of the initial amortisation period start date from March 2014 to March 2017. The composition of the portfolio has not deteriorated since DBRS’s last rating action while the transaction performance is in line with DBRS’s expectations. As of the September 2015 payment date, the net default ratio as per the transaction definition was 3.66% (revolving period will end if this ratio breaches 7.00%).

The Issuer will provision 100% of the outstanding balance after 12 months in arrears, in comparison with 25% after 6 months and 75% after 12 months. In addition to that, a cap of 15% of the transaction initial balance to be deposited at the account bank of the transaction has been introduced. Any amount above that cap will be invested in authorised investments in an entity that is independent from the account bank.

Concentration limits in the replenishment criteria regarding top borrowers concentration have increased; limits for receivables paying interest other than monthly or quarterly or receivables which interest is not calculated on the bases of a 3-month Euribor have also increased.

The portfolio annualised probability of default (PD) used has not changed (2.78%).

Citibank International PLC, Netherlands Branch holds the Issuer Account Bank for the transaction. The DBRS private rating of Citibank International PLC, Netherlands Branch complies with the Minimum Institution Rating given the rating assigned to the Class A notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes: All figures are in euros unless otherwise noted.

The principal methodology applicable is “Rating CLOs Backed by Loans to European Small and Medium-Sized Enterprises (SMEs)”, which can be found on the DBRS website under Methodologies at http://www.dbrs.com/about/methodologies. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology. DBRS conducted a review of the amendments agreement. The other transaction legal documents have remained unchanged since the most recent rating action, and were not reviewed.

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 the parties involved in the rating, including but not limited to the Originator, the Issuer and the Arranger (BNP Paribas, London Branch).

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 impact the rating analysis.

DBRS considers the information made available to it for the purposes of providing these rating to have been 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 19 March 2015, when DBRS confirmed the rating on the Class A notes.

Information regarding DBRS ratings, including definitions, policies and methodologies is available at 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):
-- Probability of Default Rates Used: Base Case PD of 2.78%, a 10% and 20% increase on the Base Case PD.
-- Recovery Rates Used: Base Case Recovery Rates, corresponding to an average recovery rate of 18.83% at the A (sf) stress level, a 10% and 20% decrease in the Base Case Recovery Rates.

DBRS concludes that a hypothetical increase of the base PD by 20%, ceteris paribus, would produce model results suggesting a confirmation of the Class A notes at A (sf). A hypothetical decrease of the Recovery Rate by 20% would also produce model results suggesting a confirmation of the Class A notes at A (sf). A scenario combining both a hypothetical increase in the PD by 10% and a hypothetical decrease in the Recovery Rate by 10% would also lead to model results suggesting a confirmation of the current rating of the Class A notes.

For further information on DBRS’s 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: Simon Ross
Initial Rating Date: 11 February 2011
Initial Rating Committee Chair: Jerry van Koolbergen

Lead Surveillance Analyst: Alfonso Candelas
Rating Committee Chair: Jerry van Koolbergen

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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
Rating CLOs Backed by Loans to European Small and Medium-Sized Enterprises (SMEs)
Rating CLOs and CDOs of Large Corporate Credit
Cash Flow Assumptions for Corporate Credit Securitizations
Operational Risk Assessment for European Structured Finance Servicers
Unified Interest Rate Model for European Securitisations
Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda

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.