DBRS Finalises Provisional Ratings of A (low) (sf) and BBB (low) (sf) on Aqua Finance No. 4

DBRS Ratings Limited (DBRS) has today finalised provisional ratings on the following notes issued by Tagus - Sociedade de Titularização de Créditos, S.A. (Aqua Finance No. 4) (the Issuer):

-- A (low) (sf) on the Class A Notes,
-- BBB (low) (sf) on the Class B Notes (collectively, the Senior Notes).

The lowest-ranked Class C Notes will not be rated by DBRS.

The Senior Notes and Class C Notes are backed by a pool of receivables related to loan, lease and rental contracts originated by Montepio Crédito – Instituição Financeira de Crédito, S.A. (the Originator), a fully owned credit institution of Caixa Económica Montepio Geral.

The ratings are based upon DBRS’s review of the following analytical considerations:

-- The sufficiency of available credit enhancement in the form of subordination (30.1% for the Class A Notes and 22.6% for the Class B Notes), a cash reserve and excess spread.
-- The ability of the transaction’s structure and triggers to withstand stressed cash flow assumptions and repay the Senior Notes according to the terms of the transaction documents.
-- The capabilities of the Originator with respect to originations, underwriting and servicing.
-- The legal structure and presence of legal opinions addressing the assignment of the assets to the Issuer and the consistency with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

The transaction was modelled in Intex DealMaker and with the default rates at which the Senior Notes did not return all specified cash flows in a timely manner.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is “Rating European Consumer and Commercial Asset-Backed Securitisations”.

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. Due to the inclusion of a revolving period in the transaction, the analysis is based on the worst-case replenishment criteria set forth in the transaction legal documents.

Other methodologies 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 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 data and information used for these ratings include performance data provided through the arranger, StormHarbour Securities LLP. DBRS received historical static default data on the entire portfolio of new autos, used autos and equipment originated by Montepio Crédito on a quarterly basis from Q1 2009 to Q3 2016. Default data is further split by individual and company borrowers for new autos and by lending products (loans, leases and renting). Quarterly static recovery data is provided from Q3 2009 to Q3 2016. DBRS also received quarterly dynamic arrears data from Q1 2009 to Q4 2016 and monthly dynamic prepayment rates from 2009 to 2016. In addition, DBRS received a loan-level data tape for company borrowers as well as a set of stratification tables as of 5 May 2017.

DBRS did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial rating DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

These ratings concern a newly issued financial instrument. This is the first DBRS rating on this financial instrument.

Information regarding DBRS ratings, including definitions, policies and methodologies, is 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):

-- Probability of default (PD) and loss given default (LGD): Base Case of 10.4% and 86.8%, respectively, a simultaneous 25% and 50% increase on the Base Case PD and LGD.
-- Residual value loss (RV Loss): Base Case of 37% for the Class A Notes and 27% for the Class B Notes, respectively, a 25% and 50% increase in RV Loss.

DBRS concludes that for the Class A Notes:

-- A hypothetical increase of the RV Loss by 25%, ceteris paribus, would maintain the rating of the Class A Notes at A (low) (sf).
-- A hypothetical increase of the RV Loss by 50%, ceteris paribus, would maintain the rating of the Class A Notes at A (low) (sf).
-- A hypothetical increase of the base case PD and LGD by 25%, ceteris paribus, would result in a downgrade of the rating of the Class A Notes to BBB (sf).
-- A hypothetical increase of the base case PD and LGD by 25% and a hypothetical increase of the RV Loss by 25%, ceteris paribus, would result in a downgrade of the rating of the Class A Notes to BBB (low) (sf).
-- A hypothetical increase of the base case PD and LGD by 25% and a hypothetical increase of the RV Loss by 50%, ceteris paribus, would result in a downgrade of the rating of the Class A Notes to BBB (low) (sf).
-- A hypothetical increase of the base case PD and LGD by 50%, ceteris paribus, would result in a downgrade of the rating of the Class A Notes to BB (high) (sf).
-- A hypothetical increase of the base case PD and LGD by 50% and a hypothetical increase of the RV Loss by 25%, ceteris paribus, would result in a downgrade of the rating of the Class A Notes to BB (sf).
-- A hypothetical increase of the base case PD and LGD by 50% and a hypothetical increase of the RV Loss by 50%, ceteris paribus, would result in a downgrade of the rating of the Class A Notes to BB (sf).

DBRS concludes that for the Class B Notes:
-- A hypothetical increase of the RV Loss by 25%, ceteris paribus, would result in a downgrade of the rating of the Class B Notes to BB (high) (sf).
-- A hypothetical increase of the RV Loss by 50%, ceteris paribus, would result in a downgrade of the rating of the Class B Notes to BB (high) (sf).
-- A hypothetical increase of the base case PD and LGD by 25%, ceteris paribus, would result in a downgrade of the rating of the Class B Notes to BB (sf).
-- A hypothetical increase of the base case PD and LGD by 25% and a hypothetical increase of the RV Loss by 25%, ceteris paribus, would result in a downgrade of the rating of the Class B Notes to below BB (low) (sf).
-- A hypothetical increase of the base case PD and LGD by 25% and a hypothetical increase of the RV Loss by 50%, ceteris paribus, would result in a downgrade of the rating of the Class B Notes to below BB (low) (sf).
-- A hypothetical increase of the base case PD and LGD by 50%, ceteris paribus, would result in a downgrade of the rating of the Class B Notes to B (sf).
-- A hypothetical increase of the base case PD and LGD by 50% and a hypothetical increase of the RV Loss by 25%, ceteris paribus, would result in a downgrade of the rating of the Class B Notes to B (sf).
-- A hypothetical increase of the base case PD and LGD by 50% and a hypothetical increase of the RV Loss by 50%, ceteris paribus, would result in a downgrade of the rating of the Class B Notes to B (sf).

For further information on DBRS historical default rates published by the European Securities and Markets Authority (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.

Lead Analyst: Kevin Chiang, Senior Vice President, Global Structured Finance
Rating Committee Chair: Christian Aufsatz, Managing Director, European Structured Finance, Global Structured Finance
Initial Rating Date: 21 June 2017

DBRS Ratings Limited
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- 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.