DBRS Takes Rating Actions on Three Pelican Mortgages Transactions

DBRS Ratings GmbH (DBRS) took the following rating actions on three Portuguese Residential Mortgage-Backed Securities transactions (the Transactions):

-- Sagres STC (Pelican Mortgages No. 4): Class A Notes upgraded to AA (sf) from A (high) (sf)
-- Sagres STC (Pelican Mortgages No. 5): Class A Notes confirmed at AA (high) (sf)
-- Sagres STC (Pelican Mortgages No. 6): Class A Notes confirmed at AA (high) (sf)

The rating actions follow an annual review of the Transactions and are based on the following analytical considerations:

-- The portfolios’ overall performance, in terms of level of delinquencies and defaults, as of the March 2019 payment date;
-- Updated probability of default (PD) rates, loss given defaults (LGD) and expected loss assumptions for the remaining collateral pools;
-- The current available credit enhancement (CE) to the rated notes to cover expected losses assumed in line with their respective rating levels.

The ratings address the timely payment of interest and ultimate payment of principal payable on or before the respective Final Legal Maturity Date.

The Transactions are Portuguese securitisations collateralised by portfolios of residential mortgage loans granted by Caixa Económica Montepio Geral. The Notes have been issued under the Sociedade de Titularização de Créditos regime.

PORTFOLIO PERFORMANCE
As of the March 2019 payment date, for Pelican Mortgages No. 4, one-to-two months, two-to-three months and three-to-twelve months delinquencies were 0.2%, 0.04% and 0.2% of the outstanding principal balance of the portfolio, respectively, while defaulted and written-off loans were 1.0%. Gross cumulative deemed principal losses, as a percentage of the original portfolio balance, were 1.3% with cumulative recoveries of 47.5%.

For Pelican Mortgages No. 5, one-to-two months, two-to-three months and three-to-twelve months delinquencies were 0.1%, 0.04% and 0.2% of the outstanding principal balance of the portfolio, respectively, while defaulted and written-off loans were 1.0%. Gross cumulative deemed principal losses, as a percentage of the original portfolio balance, were 1.1% with cumulative recoveries of 43.9%.

For Pelican Mortgages No. 6, one-to-two months, two-to-three months and three-to-twelve months delinquencies represented 0.5%, 0.3% and 0.9% of the outstanding principal balance of the portfolio, respectively, while defaulted and written-off loans represented 4.0%. Gross cumulative deemed principal losses represented 5.0% of the original portfolio balance, with cumulative recoveries of 33.6%.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the outstanding portfolios and updated its base case PD and LGD assumptions as follows:

-- Pelican Mortgages No. 4: PD of 8.3% and LGD of 13.4%;
-- Pelican Mortgages No. 5: PD of 7.5% and LGD of 12.6%;
-- Pelican Mortgages No. 6: PD of 9.7% and LGD of 24.7%.

CREDIT ENHANCEMENT
CE to the rated notes is provided by the subordination of the junior obligations and a cash reserve. As of March 2019, CE to the Class A Notes of Pelican Mortgages No. 4 and Pelican Mortgages No. 5 was 24.3% and 34.1%, respectively, unchanged from 12 months ago as these two transactions continue to amortise on a pro rata basis. CE to the Class A Notes of Pelican Mortgages No. 6 increased to 42.3% from 38.7% 12 months ago as this transaction continues to amortise sequentially.

As of March 2019, the cash reserve accounts of Pelican Mortgages No. 4 and Pelican Mortgages No. 5 were at their target levels of EUR 17.1 million and EUR 17.0 million, respectively, set as the higher of 3% of the respective balance of notes outstanding and the floor of EUR 10.0 million. The cash reserves are available to cover senior expenses, interest payments on the mortgage-backed notes and to clear principal deficiency ledger (PDL) balances.

For Pelican Mortgages No. 6, the cash reserve account is divided into two ledgers: the General Ledger, available to cover senior expenses, interest payments on the Class A Notes and to clear the Class A PDL; and the Shortfall Liquidity Ledger, which is available to cover senior expenses and interest payments on the Class A Notes. As of March 2019, the General Ledger was at its target level of EUR 31.0 million, set as the higher of 7.5% of the outstanding Class A Notes balance and the EUR 30.0 million floor, while the Shortfall Liquidity Ledger was funded to its target level equal to the interest amount due on the Class A Notes on the subsequent payment date and the amounts paid under the senior items of the interest priority of payments on the most recent payment date.

Citibank N.A, London Branch (Citibank) acts as the account bank for the Transactions. Based on the DBRS private rating of Citibank and mitigating factors inherent in the Transactions’ structures, DBRS considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the respective Class A Notes, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.

Credit Agricole Corporate & Investment Bank (CA-CIB) acts as the Swap Counterparty for Pelican Mortgages No. 5. The DBRS private rating for CA-CIB meets the rating requirement given the rating assigned to the Class A Notes, as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

The Royal Bank of Scotland NV, London Branch (RBS) acts as the Hedge Counterparty for Pelican Mortgages No. 4. As the DBRS private rating for RBS does not meet the rating requirement given the rating assigned to the Class A Notes, as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology, the interest rate swap agreement was not considered in the cash flow analysis of the transaction.

The transaction structures were analysed in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings 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 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 “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/333487/rating-sovereign-governments.pdf.

The sources of data and information used for these ratings 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 ratings, 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 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.

The last rating actions on Pelican Mortgages No. 4 and Pelican Mortgages No. 5 took place on 13 April 2018, when DBRS confirmed its rating on the Class A Notes of Pelican Mortgages No. 4 at A (high) (sf) and confirmed its rating on the Class A Notes of Pelican Mortgages No. 5 at AA (high) (sf). The last rating action on Pelican Mortgages No. 6 took place on 9 August 2018, when DBRS confirmed its rating on the Class A Notes at AA (high) (sf).

The lead analyst responsibilities for the Transactions have been transferred to Daniel Rakhamimov.

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

-- DBRS expected a lifetime base case PD and LGD for the pools 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.

-- For Pelican Mortgages No. 4, the Base Case PD and LGD of the current pool of receivables are 8.3% and 13.4%, respectively. At the AA (sf) rating level, the corresponding PD is 26.2% and the LGD is 31.2%.

-- For Pelican Mortgages No. 5, the Base Case PD and LGD of the current pool of receivables are 7.5% and 12.6%, respectively. At the AA (high) (sf) rating level, the corresponding PD is 27.6% and the LGD is 28.7%.

-- For Pelican Mortgages No. 6, the Base Case PD and LGD of the current pool of receivables are 9.7% and 24.7%, respectively. At the AA (high) (sf) rating level, the corresponding PD is 32.3% and the LGD is 43.0%.

-- The Risk Sensitivity below illustrates the ratings expected for the rated 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 Pelican Mortgages No. 4 Class A Notes would be expected to remain at AA (sf), the rating of the Pelican Mortgages No. 5 Class A Notes would be expected to remain at AA (high) (sf) and the rating of the Pelican Mortgages No. 6 Class A Notes would be expected to remain at AA (high) (sf), all else being equal. If the PD increases by 50%, the rating of the Pelican Mortgages No. 4 Class A Notes would be expected to remain at AA (sf), the rating of the Pelican Mortgages No. 5 Class A Notes would be expected to remain at AA (high) (sf) and the rating of the Pelican Mortgages No. 6 Class A Notes would be expected to remain at AA (high) (sf), all else being equal. Furthermore, if both the PD and LGD increase by 50%, the rating of the Pelican Mortgages No. 4 Class A Notes would be expected to be downgraded to A (low) (sf), the rating of the Pelican Mortgages No. 5 Class A Notes would be expected to remain at AA (high) (sf) and the rating of the Pelican Mortgages No. 6 Class A Notes would be expected to remain at AA (high) (sf), all else being equal.

Pelican Mortgages No. 4 - Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)

Pelican Mortgages No. 5 - 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)

Pelican Mortgages No. 6 - 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 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 GmbH are subject to EU and US regulations only.

Lead Analyst: Daniel Rakhamimov, Senior Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 24 February 2011 (Pelican Mortgages No. 4 and Pelican Mortgages No. 5); 5 March 2012 (Pelican Mortgages No. 6)

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland

Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers

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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.