DBRS Confirms Rating on Volta III Electricity Receivables Securitisation

DBRS Ratings Limited (DBRS) has today confirmed its rating of the Senior Notes of Volta III Electricity Receivables Securitisation (the Issuer) at BBB (high) (sf).

Based on the DBRS Portuguese Electricity Tariff methodology, the rating of the above transaction is limited to a two-notch increase above the current local currency sovereign rating of the Republic of Portugal. DBRS Sovereign Group confirmed the Republic of Portugal Long-Term Issuer Rating at BBB (low) with a Stable trend in November 2015 (see press release issued on 13 November 2015 “DBRS Confirms Republic of Portugal at BBB (low), Stable Trend”).

This is a static cash securitisation of Portuguese electricity tariff receivables assigned to TAGUS – Sociedade de Titularização de Créditos (Volta III) by EDP – Serviço Universal (EDP-SU). The transaction closed in March 2015.

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. Such additional costs are incurred by EDP-SU with respect to the purchase of electricity from special regime generators for 2014, including adjustments from the two previous years (2012 and 2013), and are defined as the over costs.

Credit enhancement for the Senior Notes has been stable over the last year and is currently (February 2016) at 0.60%. The transaction benefit from a principal to pay interest mechanism and an amortising Liquidity Reserve to cover against potential liquidity risk. In addition, an Expense Reserve funded with the proceeds of the Class R Notes covers one year of the annual transaction costs, as well as unforeseen transaction costs incurred over the life of the transaction. The Liquidity Reserve and the Expense Reserve are at the current target level of EUR 1,962.75 million and EUR 386.29 million, respectively.

Deutsche Bank AG, London Branch is the Account Bank 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 Senior 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.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

A review of the transaction 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 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 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 Deutsche Bank AG, London Branch and servicer reports provided by Banco Comercial Português, SA. 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 impact 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.

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

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

To assess the impact of the changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with the parameters used to determine the rating:

DBRS concludes that for the Senior Notes:
-- A hypothetical downgrade of the sovereign rating of the Portuguese Republic by one notch, ceteris paribus, would lead to a downgrade of the Senior Notes to BBB (sf).
-- A hypothetical downgrade of the sovereign rating of the Portuguese Republic by two notches, ceteris paribus, would lead to a downgrade of the Senior Notes to BBB (low) (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: Paolo Conti
Initial Rating Date: 9 March 2015
Initial Rating Committee Chair: Chuck Weilamann

Lead Surveillance Analyst: Vito Natale
Rating Committee Chair: Chuck Weilamann

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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.
Rating Portuguese Electricity Tariff Securitisations.
Master European Structured Finance Surveillance Methodology.
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.