DBRS Upgrades Ratings on SAGRES - Sociedade de Titularização de Créditos, S.A. (Ulisses Finance No. 1)

DBRS Ratings GmbH (DBRS) upgraded the ratings on the following notes (the Rated Notes) issued by SAGRES - Sociedade de Titularização de Créditos, S.A. (Ulisses Finance No. 1) (the Issuer):

-- Class A Notes to AA (low) (sf) from A (sf)
-- Class B Notes to A (sf) from BBB (high) (sf)
-- Class C Notes to BBB (low) (sf) from BB (sf)

The ratings on the Rated Notes address the timely payment of interest and ultimate payment of principal on or before the final legal maturity date in March 2033.

The upgrades follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults and losses;
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables;
-- Current available credit enhancement (CE) to the Rated Notes to cover the expected losses at their respective rating levels.

The Issuer is a Portuguese securitisation of auto loan receivables granted and serviced by 321 Crédito – Instituição Financeira de Crédito, S.A. The transaction closed in July 2017 and had a 12-month revolving period, which ended on the July 2018 payment date. As of the June 2019 payment date, the EUR 101.3 million portfolio (excluding defaulted receivables) consisted primarily of loans granted for the purchase of used vehicles (over 99% of the outstanding pool balance).

PORTFOLIO PERFORMANCE
As of the June 2019 payment date, total delinquencies represented 2.9% of the outstanding principal balance of the portfolio. Gross cumulative defaults amounted to 0.6% of the aggregate original portfolio balance.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 7.0% and 74.4%, respectively.

CREDIT ENHANCEMENT
CE is provided by the subordination of the respective junior obligations and the cash reserve. As of the June 2019 payment date, CE to the Class A Notes was 22.3%, CE to the Class B Notes was 15.4% and CE to the Class C Notes was 8.4%, up from 16.4%, 11.4% and 6.4% at closing, respectively. The increased CE prompted the upgrades on the Rated Notes.

The Cash Reserve Account is available to cover senior expenses and interest shortfalls on the Rated Notes. It also provides credit support to the Rated Notes through its subordination to the Class A, Class B and Class C principal deficiency ledgers in the priority of payments. Since closing, this account has been funded with EUR 2.0 million and its target level is set at 1.5% of the Rated Notes balance, subject to a EUR 1.3 million floor.

Citibank N.A., London branch (Citibank London) acts as the account bank for the transaction. Based on the DBRS private rating of Citibank London, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the Rated Notes, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.

Deutsche Bank AG, London branch (DB London) acts as the cap counterparty for the transaction. The DBRS private rating of DB London is consistent with the ratings assigned to the Rated Notes, as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

The transaction structure was 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 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 “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 London and loan-by-loan data from the European DataWarehouse GmbH.

DBRS does 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.

The last rating action on this transaction took place on 10 July 2018, when DBRS confirmed the rating of the Class A Notes at A (sf), upgraded the rating of the Class B and C Notes to BBB (high) (sf) and BB (sf), respectively, and removed the Under Review with Positive Implications status on the Rated Notes.

The lead analyst responsibilities for this transaction 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 rating, DBRS considered the following stress scenarios as compared with the parameters used to determine the rating (the Base Case):

-- DBRS expected a lifetime base case PD and LGD for the pool 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.
-- The base case PD and LGD of the current pool are 7.0% and 74.4%, respectively.
-- The Risk Sensitivity overview below illustrates the ratings expected for the Rated Notes if the PD and LGD increase by certain percentages 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 A (high) (sf), the rating of the Class B Notes to BBB (high) (sf) and the rating of the Class C Notes to BB (sf), all else being equal. If the PD increases by 50%, the rating of the Class A Notes would be expected to decrease to A (sf), the rating of the Class B Notes to BBB (sf) and the rating of the Class C Notes to BB (low) (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 BBB (high) (sf), the rating of the Class B Notes to BB (high) (sf) and the rating of the Class C Notes to B (sf), all else being equal.

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

Class B Notes risk sensitivity:
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD, expected rating of A (low) (sf)
-- 50% increase in PD, expected rating of BBB (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 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 (high) (sf)

Class C Notes risk sensitivity:
-- 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in LGD, expected rating of BB (sf)
-- 25% increase in PD, expected rating of BB (high) (sf)
-- 50% increase in PD, expected rating of BB (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of B (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of B (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of 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 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: 16 June 2017

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Geschäftsführer: Detlef Scholz
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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
-- 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.