DBRS Confirms Rating on Class A Notes Issued by Pelican Finance No. 1

DBRS Ratings Limited (DBRS) confirmed its A (sf) rating on the Class A Notes issued by Tagus - Sociedade de Titularização de Créditos, S.A. (Pelican Finance No. 1) (the Issuer or Pelican Finance No.1).

The rating action follows an annual review of the transaction and is based on the following analytical considerations:
-- The overall portfolio performance as of the October 2017 payment date, particularly with regard to low levels of delinquencies and cumulative net losses;
-- No Notification Events nor Servicer Events have occurred;
-- The current available credit enhancement (CE) to the Class A Notes to cover expected losses assumed in line with the A (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 December 2028.

Pelican Finance No.1 is a securitisation collateralised by portfolio of consumer and auto loan receivables granted by Caixa Económica Montepio Geral (Montepio) and Montepio Crédito – Instituição Financeira de Crédito, S.A. (Montepio Crédito) to individuals residing in Portugal.

PORTFOLIO PERFORMANCE
As of the October 2017 payment date, one- to two-month and two- to three-month delinquencies were 0.9% and 0.5% of the portfolio balance, respectively, while three- to six-month delinquencies were 0.5%. The Gross Cumulative Default Ratio, calculated based on the principal outstanding balance of loans in arrears by six months or more and written-off loans, was 1.9%.

REVOLVING PERIOD
The transaction closed in May 2014 and has a 42-month revolving period, ending in November 2017 payment date. The purchase of new loans during the revolving period is subject to certain conditions and limitations (the Portfolio Tests); the revolving period will prematurely end after the occurrence of certain events, including the termination of Montepio and/or Montepio Crédito as Servicer and a breach of the Portfolio Tests.

CREDIT ENHANCEMENT
CE for the Class A Notes (36.0%) is provided by the subordination of the more junior obligations and the Cash Reserve Account.

The transaction benefits from a non-amortising Cash Reserve Account, which is available to cover senior expenses, missed interest payments on the Class A Notes and to cure the Class A Principal Deficiency Ledger. This reserve had been funded at closing through the proceeds of the Class C Notes issuance and it currently stands at its target level of EUR 14.7 million.

Deutsche Bank AG, London Branch (DB London) is the Accounts Bank for this transaction. The DBRS private rating for DB 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.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: “Master European Structured Finance Surveillance Methodology”.

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

An asset and a cashflow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.

A review of the transactions legal documents was not conducted as the legal documents have remained unchanged since the most recent rating actions.

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” at:
http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of data and information used for this rating include information provided by Montepio and DB London (the Transaction Manager) and loan-level 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 not 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 the transaction took place on 8 November 2016, when DBRS confirmed the rating on the Class A Notes at A (sf).

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”):

-- DBRS expected a base case probability of default (PD) and loss given default (LGD) for the portfolio based on a review of the current assets and the transaction’s replenishment criteria. 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 receivables are 16.7% and 64.7%, respectively, excluding sovereign stress.

-- The Risk Sensitivity below illustrates the ratings expected for the Class A Notes if the PD and LGD increase by a certain percentage over the base case assumptions. For example, if the LGD increases by 50%, the rating of the Class A Notes would be expected to decrease to BBB (sf), all else being equal. If the PD increases by 50%, the rating of the Class A Notes would be expected to decrease to BBB (sf), all else being equal. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to decrease to BB (sf), all else being equal.

Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD, expected rating of A (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD, expected rating of BBB (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (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 Dates: 16 May 2014

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.

-- Master European Structured Finance Surveillance Methodology
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Legal Criteria for European Structured Finance Transactions
-- Unified Interest Rate Model for European Securitisations
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators

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.