DBRS Confirms Rating on Class A Notes Issued by Sagres Sociedade de Titularização de Créditos, S.A. (Pelican SME No. 2)

DBRS Ratings Limited (DBRS) has today confirmed its A (low) (sf) rating on the EUR 545,900,000.00 Class A Notes issued Sagres Sociedade de Titularização de Créditos, S.A. (Pelican SME No. 2) (the Issuer).

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 Legal Maturity Date in February 2043.

The Issuer is a limited liability company created in accordance with Decree-Law 453/99. The transaction is a securitisation collateralised by a portfolio of term loans and working capital facilities granted by Caixa Económica Montepio Geral (Montepio or the Originator) to Portuguese small and medium-sized enterprises (SMEs).

The rating action reflects an annual review of the transaction, based upon the following analytical considerations:
-- Portfolio Performance, in terms of delinquencies and defaults, as of the February 2016 payment date, in line with DBRS’s initial expectations.
-- The current available credit enhancement to the notes to cover expected losses assumed in line with the A (low) (sf) rating level for the Class A Notes.

Credit enhancement for the Class A Notes has decreased from 51.5% at closing to 50.6%, reflecting the current amount of defaulted loans and delinquencies greater than 90 days (1.2% and 0.6%, respectively, of the principal balance of the portfolio as of 25 February 2016 payment date). Credit enhancement is provided by the subordination of the Class B, Class C and Class D Notes and the Cash Reserve Account.

The transaction closed in March 2015 and has a 24-month revolving period and, following the end of the revolving period, the transaction will enter into a 12-month offering period whereby the Originator will have the option to sell to the Issuer only additional drawings under revolving lines of credit already in the portfolio. The purchase of new loans or additional drawings will be financed first with principal cash flows, but also with further issuances of Class D Notes at the option of the Originator. The purchase of new loans during both the revolving and offering period will be subject to certain conditions and limitations (the Portfolio Tests). Furthermore, the revolving period and offering period will prematurely end after the occurrence of certain events, including the termination of Montepio as Servicer and a breach of the Portfolio Tests.

Montepio is the Originator, Servicer and Collections Account Bank for this transaction, Whitestar Asset Solutions S.A. is the Back-up Servicer, and Citibank Europe plc - Portuguese Branch is the Paying Agent.

Citibank N.A., London Branch is the Accounts Bank for this transaction. The DBRS private rating complies with the Minimum Institution Rating given the rating assigned to the 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)”. DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

An asset and a cash flow analysis were both conducted. However, due to the inclusion of a revolving period in the transaction, and no change in assumptions, the initial analysis based on worst-case replenishment criteria set forth in the transaction legal documents was assumed.

A review of the transaction’s legal documents was not conducted, as the documents have remained unchanged since the most recent rating action.

Other methodologies referenced in this transaction are listed at the end of this press release. This may be found at http://www.dbrs.com/about/methodologies.

For a more detailed discussion of the 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 action include information provided by Montepio and Citibank N.A., London Branch, and loan-level data from the European DataWarehouse GmbH.

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 available to it for the purposes of providing these ratings 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.

This is the first rating action since the Initial Rating Date. The lead responsibilities for this transaction have been transferred to Alfonso Candelas.

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 ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the ratings (the Base Case):
-- Probability of Default (PD) Rates Used: Base Case PD of 6.23%, and a 10% and 20% increase in the Base Case PD.
-- Recovery Rates Used: Base Case Recovery Rates, corresponding to a recovery rate of 22.29% at the A (low) (sf) stress level, and a 10% and 20% decrease in the Base Case Recovery Rates.

DBRS concludes that either a hypothetical increase of the base PD by 20% or a hypothetical decrease of the Recovery Rate by 20%, ceteris paribus, would produce model results suggesting a downgrade of the Class A Notes to BBB (high) (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 downgrade of the Class A Notes to BBB (high) (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: Marcello Bonassoli
Initial Rating Date: 10 March 2015
Initial Rating Committee Chair: Carlos Silva

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

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The rating methodologies 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 Small and Medium-Sized European 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
-- Operational Risk Assessment for European Structured Finance Originators
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- 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.