DBRS Upgrades Rating on Sagres STC (Pelican Mortgages No. 6)

DBRS Ratings Limited (DBRS) has today upgraded the rating on the EUR 609,518,737.33 Class A Notes issued by Sagres STC (Pelican Mortgages No. 6) (the Issuer) to AA (high) (sf) from AA (sf).

The rating upgrade reflects an annual surveillance review of the transaction, based upon the following analytical considerations:
-- Portfolio performance, in terms of delinquencies and defaults, as of the March 2016 payment date.
-- Updated portfolio default rate, loss given default and expected loss assumptions for the remaining collateral pool.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested.
-- The current available credit enhancement to the Class A Notes to cover expected losses assumed in line with AA (high) (sf) rating level.

The ratings of the Class A Notes address the timely payment of interest and the ultimate payment of principal on or before the Final Legal Maturity Date in December 2063.

The Issuer is a limited liability company created in accordance with Decree-Law 453/99. The transaction is a securitisation of Portuguese residential mortgage loans granted by Caixa Económica Montepio Geral and closed in March 2012.

The portfolio is performing in line with DBRS’s expectations. As of March 2016 payment date, 90+ delinquencies were 4.64% of the Aggregate Principal Balance (including Substitutions) of the securitised pool. The cumulative default ratio was 0.56% of the original portfolio balance.

Credit enhancement for the Class A Notes, currently at 35.92%, is provided by the subordination of the Class B Notes and the Cash Reserve General Ledger.

The transaction includes a Cash Reserve Account funded at closing with the proceeds from the issuance of Class D Notes and it has two ledgers:
-- The General Ledger is available to cover senior expenses, missed interest payments on the Class A Notes and Class A Principal Deficiency Ledger. This reserve will be amortising from March 2017 onward up to a EUR 30.0 million floor, assuming the conditions defined under the Cash Reserve Release Test are met.
-- The Shortfall Liquidity Ledger is available to cover senior expenses and missed interest payments on the Class A Notes.

Since the closing date, both the General Ledger and the Shortfall Liquidity Ledger have always been at their target level.

Citibank N.A./London Branch acts as Accounts Bank for this transaction. The DBRS private rating of Citibank N.A./London 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 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’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 investor reports provided by Citibank N.A./London Branch and 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 22 April 2015, when DBRS confirmed the ratings of the Class A Notes at AA (sf). The lead responsibilities for this transaction have been transferred to Joana Seara da Costa.

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 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 Probability of Default (PD) and Loss Given Default (LGD) for the pool based on a review of the current receivables. 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 12.00% and 34.57%, respectively. At the AA (high) (sf) rating level, the corresponding PD is 37.16% and the LGD is 50.58%.

-- 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 the 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 for 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 remain at AA (high) (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 (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (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: David Sanchez Rodriguez
Initial Rating Date: 5 March 2012
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Joana Seara da Costa
Rating Committee Chair: Quincy Tang

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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
-- 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 analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375