DBRS Confirms Ratings on Portuguese Electricity Tariff Securitisations

DBRS Ratings GmbH (DBRS) confirmed the following ratings on the notes issued by three Portuguese electricity tariff securitisations (the PT Electricity Tariff Transactions):

-- Volta IV Electricity Receivables Securitisation (Volta IV), Senior Notes at A (low) (sf)
-- TAGUS SOCIEDADE DE TITULARIZAÇÃO DE CRÉDITOS, S.A. (EnergyOn No. 1), Class A1 notes at A (low) (sf)
-- TAGUS SOCIEDADE DE TITULARIZAÇÃO DE CRÉDITOS, S.A. (EnergyOn No. 1), Interest Rate Swap (IRS) at A (low) (sf)
-- TAGUS SOCIEDADE DE TITULARIZAÇÃO DE CRÉDITOS, S.A. (EnergyOn No. 2), Class A notes at A (low) (sf)

The confirmations follow an annual review of the transactions and are based on the following analytical considerations:

-- The linkage between the performance of the sovereign and the performance of the securities issued by the PT Electricity Tariff Transactions.
-- No adverse change of the legal or regulatory framework is expected.
-- The transactions are not exposed to the credit risk of any specific entity.

The PT Electricity Tariff Transactions are static securitisations of Portuguese electricity tariff receivables (Credit Rights) assigned to the issuer (TAGUS Sociedade de Titularização de Créditos, S.A) by EDP – Serviço Universal, S.A. (EDP-SU). Pursuant to the Portuguese Decree-law 29/2006 (as subsequently amended and republished), EDP-SU has the right to recover any amounts arising from the difference between the costs of acquiring electricity under the special regime generation according to administrative prices and the sale price of the respective electricity valued according to market prices. The Credit Rights are paid by all Portuguese electricity consumers through their inclusion in the tariffs on a permanent basis as a component of the Global Use of System Tariff, or total rate per unit paid by end consumers.

Based on DBRS’s “Rating Portuguese Electricity Tariff Securitisations” methodology, the ratings on securities issued by the PT Electricity Tariff Transactions are limited to a two-notch increase above the current local currency sovereign rating of the Republic of Portugal (Portugal). DBRS’s Sovereign Group confirmed Portugal’s Long-Term Foreign and Local Currency Issuer Ratings at BBB with a Positive trend in April 2019 (see press release issued on 5 April 2019, “DBRS Confirms Republic of Portugal at BBB, Trend Changed to Positive”).

In addition, the IRS payments to the Swap Counterparty of EnergyOn No. 1 are senior to the Class A1 notes in the priority of payments, and based on DBRS’s “Rating Portuguese Electricity Tariff Securitisations” methodology the rating of the IRS is also limited to a two-notch increase above Portugal’s current local currency sovereign rating.

Citibank N.A., London Branch acts as Account Bank for Volta IV, while Deutsche Bank AG, London Branch (DB London) assumed this role for the remaining two PT Electricity Tariff Transactions. Based on the DBRS private ratings of both entities, the downgrade provisions outlined in the Volta IV transaction documents, and structural mitigants, DBRS considers the risk arising from the exposure to both entities to be consistent with the rating assigned to the Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

DB London is the Swap Counterparty of EnergyOn No. 1 and Banco Santander SA is the Swap Counterparty of EnergyOn No. 2. Based on the DBRS private rating of DB London and the DBRS Long-Term Critical Obligations Rating of Banco Santander SA at AA (low), DBRS considers the risk arising from the exposure to both entities to be consistent with the rating assigned to the Notes.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings 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 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: https://www.dbrs.com/research/333487/rating-sovereign-governments.

The sources of data and information used for these ratings include information provided by Citibank N.A., London Branch for Volta IV and by DB London for EnergyOn No. 1 and EnergyOn No. 2.

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 action on the PT Electricity Tariff transactions took place on 11 May 2018, when DBRS upgraded the ratings on the notes to A (low) (sf) from BBB (high) (sf).

The lead analyst responsibilities for these transactions have been transferred to Alfonso Candelas.

Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.

To assess the impact of changing the transactions parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating:

-- A hypothetical downgrade of the sovereign rating of Portugal by one notch, ceteris paribus, would lead to a downgrade of the rated notes to BBB (high) (sf).

-- A hypothetical downgrade of the sovereign rating of Portugal by two notches, ceteris paribus, would lead to a downgrade of the rated notes to BBB (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: Alfonso Candelas, Senior Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date - EnergyOn No. 1: 8 April 2011
Initial Rating Date - EnergyOn No. 2: 8 April 2011
Initial Rating Date - Volta IV: 18 July 2016

DBRS Ratings GmbH
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60311 Frankfurt am Main Deutschland

Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

The rating methodologies used in the analysis of these transactions can be found at:
http://www.dbrs.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology
-- Rating Portuguese Electricity Tariff Securitisations
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions

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.