DBRS Upgrades Rating on Class A Notes Issued by Sagres Sociedade de Titularização de Créditos, S.A. (Pelican SME No. 2)

DBRS Ratings Limited (DBRS) has today upgraded the rating on the Class A Notes issued by Sagres Sociedade de Titularização de Créditos, S.A. (Pelican SME No. 2) (the Issuer) to AA (sf) from A (low) (sf).

The above-mentioned rating action follows an annual review of the transaction and is based on the following analytical considerations:
-- The portfolio performance, in terms of level of delinquencies and defaults, as of July 2017;
-- Updated portfolio default rate, recovery rate and expected loss assumptions for the remaining collateral pool; and
-- The current available credit enhancement (CE) to the Class A Notes to cover expected losses assumed in line with the AA (sf) rating level.

The rating on the Class A Notes addresses the timely payment of interest and ultimate payment of principal payable on or before the Final Legal Maturity Date in February 2043.

The Issuer is a securitisation collateralised by a portfolio of term loans and working capital facilities granted by Caixa Económica Montepio Geral (Montepio) to Portuguese small- and medium-sized enterprises (SMEs).

The transaction closed in March 2015 and included a 24-month revolving period followed by a 12-month offering period whereby Montepio would have the option to sell to the Issuer additional drawings under revolving lines of credit already in the portfolio. The revolving period ended in March 2017 and, in June 2017, Montepio exercised the option to terminate the offering period and the Class A Notes started being amortised.

PORTFOLIO PERFORMANCE
As of the July 2017 payment date, the overall portfolio consisted of 15,643 contracts with an aggregate principal balance of EUR 936.3 million, of which EUR 125.4 million related to working capital facilities.

Loans in arrears between one and two months and loans in arrears between two and three months represented 0.3% and 0.3% of the principal outstanding balance of the portfolio, respectively, while delinquencies greater than three months were 0.9%. The cumulative gross default ratio, as a percentage of the original portfolio and cumulative transferred receivables, was 2.1%.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the remaining pool and updated its portfolio default and recovery assumptions on the outstanding portfolio to 50.8% and 19.6%, respectively, at the AA (sf) rating level.

CREDIT ENHANCEMENT
As of July 2017, CE to the Class A Notes was 59.3%, up from 50.2% in July 2016. The CE of the Class A Notes considers the balance of the performing portfolio (excluding delinquencies greater than three months and defaulted loans) and the Cash Reserve. Up to the April 2017 payment date, the Cash Reserve has always been at its target level of EUR 16.4 million.

Citibank N.A., London Branch is the Accounts Bank for the transaction. DBRS’s private rating on 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 to the rating is: “Rating CLOs Backed by Loans to European SMEs”.

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

A review of the transaction legal documents was not conducted as the legal 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.

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 this rating include investor reports provided by Citibank N.A., London Branch and loan-by-loan data from the European DataWarehouse GmbH.

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 this rating to be of satisfactory quality.

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

The last rating action on this transaction took place on 1 August 2016, when DBRS confirmed the rating on the Class A Notes at A (low) (sf).

The lead responsibilities for this transaction have been transferred to Joana Seara da Costa.

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 ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

-- Probability of Default (PD) rates used: Base Case PD of 6.2%, a 10% and 20% increase on the Base Case PD.
-- Recovery Rates used: Base Case recovery rate of 19.6% at the AA (sf) stress level and a 10% and 20% decrease in the Base Case recovery rate. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery rate levels.

DBRS concludes that either a hypothetical increase of the Base Case PD by 10%, a hypothetical decrease of the recovery rate by 10%, or a scenario combining both an increase in the PD by 10% and a decrease in the recovery rate by 10% would lead to a confirmation of the Class A Notes rating at AA (sf). Either a hypothetical increase of the Base Case PD by 20%, a hypothetical decrease of the recovery rate by 20% or a scenario combining both an increase in the PD by 20% and a decrease in the recovery rate by 20% would lead to a confirmation of the Class A Notes rating at AA (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 and US regulations only.

Lead Analyst: Joana Seara da Costa, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 10 March 2015

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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 CLOs Backed by Loans to European SMEs
-- Rating CLOs and CDOs of Large Corporate Credit
-- Cash Flow Assumptions for Corporate Credit Securitizations
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Legal Criteria for European Structured Finance Transactions
-- Unified Interest Rate Model for European Securitisations
-- Operational Risk Assessment for European Structured Finance Servicers
-- Master European Structured Finance Surveillance Methodology

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