Press Release

DBRS Morningstar Finalises Provisional Ratings on Tagus – Sociedade de Titularização de Créditos, S.A., Viriato Finance No. 1

Consumer Loans & Credit Cards

September 30, 2021

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional ratings on the following classes of notes issued by Tagus – Sociedade de Titularização de Créditos, S.A., Viriato Finance No. 1 (the Issuer):

-- Class A notes at AA (low) (sf)
-- Class B notes at A (high) (sf)
-- Class C notes at BBB (high) (sf)
-- Class D notes at BB (high) (sf)
-- Class E notes at B (sf)

DBRS Morningstar does not rate the Class F, Class R, or Class X notes also issued in the transaction.

The rating of 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 of the Class B, Class C, Class D, and Class E notes address the ultimate payment of interest while junior to other outstanding classes of notes but the timely payment of scheduled interest when they are the senior-most tranche, and the ultimate repayment of principal by the legal final maturity date.

The transaction is a securitisation of Portuguese unsecured consumer loan receivables originated by WiZink Bank S.A.U., Portuguese Branch (the originator and servicer).

The ratings are based on a review of the following analytical considerations:
-- The transaction’s capital structure, including form and sufficiency of available credit enhancement to support the projected expected net losses under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay the notes according to the terms of the notes.
-- The originator’s capabilities with respect to originations, underwriting, and servicing.
-- The operational risk review of the originator, which DBRS Morningstar deems to be an acceptable servicer.
-- The transaction parties’ financial strength regarding their respective roles.
-- The credit quality and historical and projected performance of the originator’s portfolio.
-- DBRS Morningstar’s sovereign rating of the Republic of Portugal at BBB (high) with a Stable trend.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

TRANSACTION STRUCTURE
The transaction represents the issuance of Class A, Class B, Class C, Class D, Class E, and Class F notes backed by a pool of fixed-rate, unsecured and amortising personal loans granted without a specific purpose to individuals domiciled in Portugal and serviced by the originator. The Class R and Class X notes are not collateralised by the loan receivables.

The transaction features a 12-month revolving period during which time the Issuer will purchase new receivables that the originator may offer, provided that certain conditions set out in the transaction documents are satisfied.

The transaction benefits from a cash reserve equal to 1% of the Class A, Class B, and Class C notes’ outstanding balance funded by the proceeds from the Class R notes issuance proceeds at closing. The reserve is available to the Issuer only when the interest and principal collections are not sufficient to cover the shortfalls in senior expenses, swap payments, interest on the Class A notes, and if not subordinated, interest payments on the Class B and Class C notes.

COUNTERPARTIES
Elavon Financial Services D.A.C. (Elavon) is the account bank. Based on DBRS Morningstar’s private rating on Elavon and the downgrade provisions outlined in the transaction documents, DBRS Morningstar considers the risk arising from the exposure to the account bank to be commensurate with the ratings assigned.

BNP Paribas, S.A. is the swap counterparty for the transaction. DBRS Morningstar's rating on BNP Paribas meets the criteria to act in such capacity at closing. The transaction documents contain downgrade provisions consistent with DBRS Morningstar’s criteria.

PORTFOLIO ASSUMPTIONS, COVID-19 CONSIDERATIONS, AND KEY DRIVERS
While the originator has a long operating history of consumer loan lending in Portugal, the performance to date considered meaningful for detailed vintage analysis is relatively short due to the several operational and underwriting changes. DBRS Morningstar elected to set its asset assumptions of lifetime expected gross default and recovery to 8.22% and 20%, respectively, reflecting the short meaningful historical data and limited consumer loan portfolios in Portugal for benchmarking.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

The coronavirus and the resulting isolation measures have caused an immediate economic contraction, leading in some cases to increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may continue to increase in the coming months for many asset-backed security (ABS) transactions. The ratings are based on additional analysis to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar assumed a moderate decline in the expected recovery rate.

The DBRS Morningstar Sovereign group released baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 8 September 2021. DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/384150/baseline-macroeconomic-scenarios-for-rated-sovereigns and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

On 8 May 2020 and 17 June 2020, DBRS Morningstar published commentaries outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated ABS transactions in Europe. For more details, please see these commentaries: 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.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at: https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is “Rating European Consumer and Commercial Asset-Backed Securitisations” (3 September 2020).

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.

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. Due to the inclusion of a revolving period in the transaction, the analysis considers potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.

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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/381451/global-methodology-for-rating-sovereign-governments.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The data and information used for these ratings include performance and portfolio data relating to the receivables provided by the originator through the arranger, BNP Paribas, as follows:

-- Monthly default vintage analysis from January 2016 to July 2021;
-- Monthly recovery vintage analysis from January 2016 to July 2021;
-- Dynamic monthly prepayment analysis from January 2016 to June 2021;
-- Dynamic monthly delinquency data from January 2016 to June 2021; and
-- Stratification tables as of 13 September 2021.

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.

This is the first rating action since the Initial Rating Date.

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:

-- Expected Default Rate of 8.22%, a 25% and 50% increase.
-- Expected Loss Given Default (LGD) of 80%, at 90% and 100%.

Scenario 1: A 25% increase in the expected Default Rate.
Scenario 2: A 50% increase in the expected Default Rate.
Scenario 3: A 90% expected LGD.
Scenario 4: A 25% increase in the expected Default Rate and 90% expected LGD.
Scenario 5: A 50% increase in the expected Default Rate and 90% expected LGD.
Scenario 6: A 100% expected LGD.
Scenario 7: A 25% increase in the expected Default Rate and 100% expected LGD.
Scenario 8: A 50% increase in the expected Default Rate and 100% expected LGD.

DBRS Morningstar concludes that the expected ratings under the eight stress scenarios are:
-- Class A notes: A (sf), A (low) (sf), A (high) (sf), A (low) (sf), BBB (high) (sf), A (sf), A (low) (sf), BBB (high) (sf).
-- Class B notes: A (low) (sf), BBB (high) (sf), A (sf), A (low) (sf), BBB (high) (sf), A (low) (sf), BBB (high) (sf), BBB (sf).
-- Class C notes: BBB (high) (sf), BB (high) (sf), BBB (high) (sf), BBB (sf), BB (high) (sf), BBB (sf), BB (high) (sf), B (high) (sf).
-- Class D notes: BB (low) (sf), B (low) (sf), BB (sf), B (sf), Below B (low) (sf), B (high) (sf), B (sf), Below B (low) (sf).
-- Class E notes: Below B (low) (sf), Below B (low) (sf), B (low) (sf), Below B (low) (sf), Below B (low) (sf), Below B (low) (sf), Below B (low) (sf), Below B (low) (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. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Roberto Perez, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 17 September 2021

DBRS Ratings GmbH
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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: https://www.dbrsmorningstar.com/about/methodologies.

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].

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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