DBRS Morningstar Assigns Ratings to Victoria Finance No. 1

DBRS Ratings Limited (DBRS Morningstar) assigned ratings to the notes issued by Tagus - Sociedade de Titularização de Créditos, S.A. (Victoria Finance No. 1) as follows:

-- Class A Notes at A (high) (sf)
-- Class B Notes at BBB (sf)
-- Class C Notes at BB (high) (sf)

The rating on the Class A Notes addresses the timely payment of scheduled interest and the ultimate repayment of principal by the legal final maturity date. The ratings on the Class B and Class C Notes address the ultimate payment of interest and the ultimate repayment of principal by the legal final maturity date.

DBRS Morningstar does not rate the SICF note or the Class S notes also issued as part of the transaction.

The ratings are based on information provided by the issuer and its agents as of the date of this press release.

The rated notes are backed by a portfolio of EUR 505 million of credit card receivables and amortising loans granted by WiZink Bank S.A.U. Portuguese branch (the seller) to individuals in Portugal. The seller is also the initial servicer.

The ratings are based on the following analytical considerations:

--The transaction capital structure including the form and sufficiency of available credit enhancement to support DBRS Morningstar’s expectation of charge-off rates, monthly principal payment rates, and yield rates under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay the rated notes according to the terms.
-- The seller’s capabilities with respect to originations, underwriting, and servicing.
-- An operational risk review of the seller, which DBRS Morningstar deems to be an acceptable servicer.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The credit quality and diversification of the collateral and historical and projected performance of the expected securitised portfolio.
--The sovereign rating of the Republic of Portugal, currently rated BBB (high) with a Stable trend by DBRS Morningstar.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.

TRANSACTION STRUCTURE
Credit enhancement available to the rated notes during the amortisation period consists of subordination of the junior notes and SICF note, potential over-collateralisation, and excess spread.

An amortising general reserve for liquidity purposes can be used to cover senior fees and any interest shortfall on the Class A Notes. The general reserve was funded to its target level of EUR 3,925,000 at closing, which is equal to 1% of the initial Class A Notes balance.

As both the underlying receivables and the notes carry fixed rates, there is limited risk of interest rate mismatch.

COUNTERPARTIES
Elavon Financial Services DAC is the account bank for the transaction. The account bank rating threshold of BBB (high), and the downgrade provisions outlined in the transaction documents are consistent with DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology for the rating on the Class A Notes.

PORTFOLIO ASSUMPTIONS
While the payment rates have been largely stable over the past two years at around 7%, they are amongst the lowest observed in European credit card portfolios as most of the cardholders are revolvers. The most recent performance in May 2020 shows a total payment rate of 6.1%, a low level that may be due to the Coronavirus Disease (COVID-19) outbreak. Based on the analysis of historical data, DBRS Morningstar's outlook of the Portuguese credit card sector, and the portfolio-specific adjustment due to the impact of COVID-19, DBRS Morningstar set the expected monthly principal payment rate at 4.75%.

The portfolio yield started to decline in 2013 following the changes to the usury rate legislation but gradually stabilised over the past two years in line with the usury rates. The most recent performance in May 2020 shows a total yield rate of 17.1%, which is close to the historical low in the past five years. DBRS Morningstar elected to set the expected cash interest yield at 15%, reflecting the recently observed trend.

While the reported charge-off rates have been largely stable over the past two years, DBRS Morningstar used the arrears roll rates to assess the migration of delinquent balances and eventual charge-offs. Based on the analysis of delinquency trends, the expected future inflows of receivables in arrears, DBRS Morningstar's outlook of Portuguese credit card sector, the portfolio-specific adjustment due to the COVID-19 impact, the sovereign rating of Portugal, and the positive selection of eligible receivables, the expected annualised charge-off rate is set at 10.5%.

DBRS Morningstar analysed the transaction structure in its proprietary cash flow tool.

The outbreak of COVID-19 and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and adverse financial impact on many borrowers. DBRS Morningstar anticipates that delinquencies would continue to arise in the coming months for many credit card portfolios.

On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 22 July 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/364318/global-macroeconomic-scenarios-july-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. DBRS Morningstar’s analysis considered impacts consistent with the moderate scenario in the referenced reports.

On 8 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect the DBRS Morningstar-rated ABS transactions in Europe. For more details, please see: https://www.dbrsmorningstar.com/research/360734/european-abs-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.

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 “Rating European Consumer and Commercial Asset-Backed Securitisations (13 January 2020)

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

An asset and a cash flow analysis were both conducted.
Other methodologies referenced in this transaction 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/364527/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings received from the arranger, StormHarbour Securities LLP, include monthly historical dynamic data from January 2013 to May 2020 for the seller’s entire managed book in respect of receivables balances, monthly payment rates, charge-offs, yields, delinquencies, and purchase rates.
DBRS Morningstar also received stratification tables in relation to the collateral pool as of 15 July 2020.

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

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.

These ratings concern newly issued financial instruments. These are the first DBRS Morningstar ratings on these financial instruments.

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

To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the ratings:
-- Expected Charge-Off Rate: 10.5%
-- Expected Principal Payment Rate: 4.75%
-- Expected Yield Rate: 15%

-- Scenario 1: a 25% increase in the expected Charge-Off Rate
-- Scenario 2: a 25% decrease in the expected Principal Payment Rate
-- Scenario 3: a 25% decrease in the expected Yield Rate
-- Scenario 4: a 15% increase in the expected Charge-Off Rate, a 15% decrease in the expected Principal Payment Rate, and a 15% decrease in the expected Yield Rate

DBRS Morningstar concludes that the expected ratings under the four stress scenarios will be:
-- Class A Notes: A (low) (sf), A (low) (sf), A (sf), BBB (sf)
-- Class B Notes: BB (high) (sf), BB (high) (sf), BB (high) (sf), BB (sf)
-- Class C Notes: BB (sf), BB (low) (sf), BB (sf), B (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 Limited are subject to EU and U.S. regulations only.

Lead Analyst: Kevin Chiang, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 28 July 2020

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The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- Rating European Consumer and Commercial Asset-Backed Securitisations, (13 January 2020)
https://www.dbrsmorningstar.com/research/355533/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Rating European Structured Finance Transactions Methodology (21 July 2020),
https://www.dbrsmorningstar.com/research/364305/rating-european-structured-finance-transactions-methodology
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Originators (28 February 2020), https://www.dbrsmorningstar.com/research/357430/operational-risk-assessment-for-european-structured-finance-originators.
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020), https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers.

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].