DBRS Removes UR-Pos., Confirms A (sf) Rating on BBVA Portugal RMBS No. 1

DBRS Ratings Limited (DBRS) has today removed the Under Review with Positive Implications (UR-Pos.) status and confirmed the A (sf) rating on the Class A notes issued by TAGUS – SOCIEDADE DE TITULARIZAÇÃO DE CRÉDITOS, S.A. (BBVA Portugal RMBS No. 1) (the Issuer).

The rating assigned to the Class A notes addresses the timely payment of interest and ultimate payment of principal.

The rating action reflects an annual review of the transaction and concludes the UR-Pos. status of the rating. The rating on the Class A notes was previously placed UR-Pos. as a result of the updated publication of DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology (the Legal Criteria) on 19 February 2016. The Legal Criteria incorporated the Critical Obligations Ratings (COR) into counterparty replacement and other rating threshold levels to reflect an updated opinion on the reduced risk that these critical exposures could pose to structured finance transactions. As part of the Legal Criteria update, DBRS also provided more granular rating levels for account bank institution replacements and eligible investments.

The confirmation of the rating on the Class A notes is based on the following analytical considerations as described more fully below:

-- Portfolio performance, in terms of delinquencies and defaults, as of May 2016.
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions for the remaining collateral pool.
-- Current available credit enhancement to the Class A notes to cover the expected losses at its current rating level.

BBVA Portugal RMBS No. 1 is a securitisation of Portuguese residential mortgages originated by Banco Bilbao Vizcaya Argentaria (Portugal) S.A. (BBVA Portugal). The mortgage portfolio is serviced by BBVA Portugal, with Banco Bilbao Vizcaya Argentaria S.A. (BBVA Spain) acting as the back-up servicer.

As of May 2016, two- to three-month arrears were at 0.06%, and the 90+ delinquency ratio was at 0.01%. Cumulative defaults were at 0.00%.

As of June 2016, credit enhancement to the Class A notes was 11.21%, up from 10.81% at the DBRS initial rating. Credit enhancement to the Class A notes consists of subordination of the Class B notes and a General Reserve.

As of June 2016, the General Reserve was funded to the level of EUR 31.07 million, below the target level of EUR 31.10 million. The General Reserve is available to cover senior fees, Class A interest and Class A principal.

Citibank N.A., London Branch acts as the Issuer Account Bank for the 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’s legal documents was not conducted as the documents have remained unchanged since the most recent rating action.

Other methodologies and criteria referenced in this transaction are listed at the end of this press release. These 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 the DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” found at http://www.dbrs.com/industries/bucket/id/10036/name/commentaries.

The sources of information used for this rating include reports and loan-level data provided by Deutsche Bank AG, London Branch (the Transaction Manager) and 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 19 February 2016, when DBRS placed the Class A notes UR-Pos.

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 with 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 6.92% and 14.26%, respectively. At the A (sf) rating level, the corresponding PD is 20.00% and the LGD is 27.13%.
-- The Class A notes 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 A (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A notes would be expected to fall to A (low) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A notes would be expected to fall to BBB (sf).

Class A notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (sf).
-- 50% increase in LGD, expected rating of A (sf).
-- 25% increase in PD, expected rating of A (sf).
-- 50% increase in PD, expected rating of A (low) (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of A (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (sf).

For further information on DBRS historic default rates published by the European Securities and Markets Administration 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: Asim Zaman
Initial Rating Date: 31 December 2015
Initial Rating Committee Chair: Diana Turner

Lead Surveillance Analyst: Andrew Lynch, Senior Financial Analyst
Rating Committee Chair: Quincy Tang, Managing Director

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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.