DBRS Confirms Rating on Sagres STC (Pelican Mortgages No. 5)

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

Pelican Mortgages No. 5 is a securitisation of Portuguese residential mortgages originated and serviced by Caixa Económica Montepio Geral (Montepio). The transaction closed in 2009 and DBRS assigned a rating to the Class A Notes in 2011.

The confirmation of the rating of the Class A Notes reflects an annual review of the transaction and is based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies and defaults, as of the 15 March 2015 payment date.
-- Portfolio probability of default (PD) rate, loss given default (LGD) and expected losses for the remaining collateral pool.
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the AA (high) (sf) rating level.

The portfolio is performing in line with DBRS’s expectations. The current 90+ delinquency ratio as a percentage of the performing balance of the portfolio was 1.23% in March 2016 (almost stable from 1.11% in March 2015). The cumulative default ratio as a percentage of the original balance slightly increased during the year, reaching 0.61% in March 2016 (from 0.57% in March 2015).

Credit enhancement to the Class A Notes is provided by subordination of the Class B, C and D Notes (the Junior Notes) as well as an amortising Cash Reserve Account. The credit enhancement to the Class A Notes is currently 34.09%, slightly decreased from 34.40% in March 2015 due to the amortisation of the Cash Reserve Account and the amortisation of the Junior Notes.

The Cash Reserve Account 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 2016, it is at its target level of EUR 21.83 million.

Citibank, National Association, London Branch (Citibank, N.A. London) is the Account Bank for the transaction. DBRS’s private rating of Citibank, N.A. London 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.

Crédit Agricole Corporate and Investment Bank is the swap counterparty for the transaction and its private rating complies with the Minimum Institution Rating, given the rating assigned to the Class A Notes, as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

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 the 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 Branch and the loan by loan 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 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 20 April 2015 when DBRS confirmed the rating of the Class Notes at AA (high) (sf).

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 to the parameters used to determine the rating (the “Base Case”):

-- DBRS expected a lifetime base case PD and LGD for the pool based on a review of the current assets. 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 (“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: 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 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
-- Derivative Criteria for European Structured Finance Transactions
-- 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

A description of how DBRS analysis structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375