DBRS Confirms Ratings on Portuguese Electricity Tariff Securitisations

DBRS Ratings GmbH (DBRS Morningstar) confirmed the following ratings on the Notes issued by two Portuguese Electricity Tariff Securitisations (the PT Electricity Tariff Transactions):

-- 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. DBRS Morningstar’s Sovereign Group confirmed Portugal’s Long-Term Foreign and Local Currency Issuer Ratings at BBB (high) with a Stable trend in March 2020.
-- No adverse change in the legal or regulatory framework is expected.

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. – NR (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 Morningstar’s “Rating Portuguese Electricity Tariff Securitisations” methodology, the ratings on securities issued by the PT Electricity Tariff Transactions are limited to a maximum of two-notch increase above the current local currency sovereign rating of the Republic of Portugal (Portugal). DBRS Morningstar’s Sovereign Group confirmed Portugal’s Long-Term Foreign and Local Currency Issuer Ratings at BBB (high) with a Stable trend in March 2020, one notch below the current rating of the Notes.

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 are based on DBRS Morningstar’s “Rating Portuguese Electricity Tariff Securitisations” methodology. The rating of the IRS is also limited to a maximum of two-notch increase above Portugal’s current local currency sovereign rating.

Deutsche Bank AG, London Branch (DB London) acts as Accounts Bank for the two PT Electricity Tariff Transactions. Based on the DBRS Morningstar private rating of DB London, the downgrade provisions outlined in the transactions documents, and structural mitigants inherent in the transaction structures, DBRS Morningstar considers the risk arising from the exposure to DB London to be consistent with the rating assigned to the Notes, as described in DBRS Morningstar’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. The DBRS Morningstar private rating of DB London and the DBRS Morningstar Long-Term Critical Obligations Rating of Banco Santander SA at AA (low) is consistent with the First Rating Threshold defined in DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release https://www.dbrsmorningstar.com/research/358308.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (December 2019).

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transactions 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 these transactions are listed at the end of this press release.

These may be found at: https://www.dbrsmorningstar.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 “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include information provided by DB London for both EnergyOn No. 1 and EnergyOn No. 2.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial ratings, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS Morningstar 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 9 May 2019, when DBRS Morningstar confirmed the ratings on the notes at A (low) (sf).

The lead analyst responsibilities for these transactions have been transferred to Petter Wettestad.

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

To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the ratings (the Base Case):

DBRS Morningstar concludes that for the Notes:
-- A hypothetical downgrade of the sovereign rating of Portugal by one notch, ceteris paribus, would lead to the rating of the rated notes to remain at A (low) (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 (high) (sf).

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings GmbH are subject to EU and U.S. regulations only.

Lead Analyst: Petter Wettestad, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date - EnergyOn No. 1: 8 April 2011
Initial Rating Date - EnergyOn No. 2: 8 April 2011

DBRS Ratings GmbH
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The rating methodologies used in the analysis of this transaction are listed below and can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (13 December 2019).
https://www.dbrsmorningstar.com/research/354616/master-european-structured-finance-surveillance-methodology.
-- Rating Portuguese Electricity Tariff Securitisations (24 October 2019).
https://www.dbrsmorningstar.com/research/352070/rating-portuguese-electricity-tariff-securitisations.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019).
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (26 September 2019)
https://www.dbrsmorningstar.com/research/350907/derivative-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2020).
https://www.dbrsmorningstar.com/research/351557/interest-rate-stresses-for-european-structured-finance-transactions.

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/278375.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

This press release was amended on 7 May 2020 to include the transactions' initial rating dates.