DBRS Morningstar Takes Rating Actions on TAGUS - Sociedade de Titularização de Créditos, S.A. (RMBS Green Belém No.1)

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the bonds issued by TAGUS - Sociedade de Titularização de Créditos, S.A. (RMBS Green Belém No.1) (the Issuer):

-- Class A confirmed at AAA (sf)
-- Class B upgraded to AA (low) (sf) from A (high) (sf)

The rating on the Class A notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in March 2063. The rating on the Class B notes addresses the ultimate payment of interest but timely when they become the senior-most tranche and ultimate payment of principal on or before the legal final maturity date.

The rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults and losses as of the March 2022 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- Current available credit enhancement to the notes to cover the expected losses at their respective rating levels.

The transaction is a static securitisation of prime first-lien mortgages secured over owner-occupied residential properties in Portugal, originated and serviced by the Portuguese branch of Unión de Créditos Inmobiliarios (UCI Portugal), a Spanish specialised company offering mortgage financial services in Spain and Portugal. UCI is a joint venture between Banco Santander SA (Santander) and BNP Paribas SA. The transaction closed on 30 April 2020 with an initial portfolio of EUR 385.0 million.

PORTFOLIO PERFORMANCE
As of the March 2022 payment date, loans 0 to 30 and 30 to 60 days delinquent represented 0.15% and 0.05% of the outstanding principal balance of the portfolio, respectively, with only a single loan more than 60 days in arrears, representing 0.04% of the portfolio balance. There have been no defaults to date, defined in the transaction documents as loans that are 12 or more months in arrears.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 2.9% and 10.2%, respectively.

CREDIT ENHANCEMENT
The subordination of the respective junior obligations is the sole source of credit enhancement to the rated notes. As of the March 2022 payment date, credit enhancement to the Class A notes increased to 20.0% from 15.9% at the time of the last annual review 12 months ago, while credit enhancement to the Class B notes increased to 10.8% from 8.4%. The increased credit enhancement, as well as continued deleveraging of the portfolio, prompted the upgrade on the Class B notes.

The transaction benefits from liquidity support provided by a cash reserve, which is available to cover senior expenses, interest payments on the Class A notes, and interest payment on the Class B notes (unless the interest deferral trigger is breached). As of the March 2022 payment date, the cash reserve was at its target balance of EUR 4.2 million, equal to the higher of 1.5% of the non-defaulted portfolio balance and the floor of EUR 1.9 million.

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

Santander acts as the cap counterparty for the transaction. The DBRS Morningstar public Long Term Critical Obligations Rating on Santander is AA (low), which is consistent with the First Rating Threshold as described in DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

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 the “Master European Structured Finance Surveillance Methodology” (8 February 2022).

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.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

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 sources of data and information used for these ratings include investor reports provided by Citibank London (as the Transaction Manager), servicer reports provided by UCI Portugal, and loan-level data provided by the European DataWarehouse GmbH.

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

At the time of the initial rating, 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 28 April 2021, when DBRS Morningstar upgraded the rating of the Class A to AAA (sf) from AA (high) (sf) and confirmed the rating of the Class B at A (high) (sf).

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 rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the rating (the base case):

-- DBRS Morningstar 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 of loans for the Issuer are 2.9% and 10.2%, respectively.
-- The risk sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating of the Class A would be expected to remain at AAA (sf), ceteris paribus. If the PD increases by 50%, the rating of the Class A would be expected to fall to AA (high) (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A would be expected to fall to AA (sf).

Class A Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)

Class B 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 A (high) (sf)
-- 50% increase in PD, expected rating of A (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (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: http://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: Daniel Rakhamimov, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 1 May 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.

-- Legal Criteria for European Structured Finance Transactions (29 July 2021),
https://www.dbrsmorningstar.com/research/382171/legal-criteria-for-european-structured-finance-transactions.
-- Master European Structured Finance Surveillance Methodology (8 February 2022), https://www.dbrsmorningstar.com/research/392000/master-european-structured-finance-surveillance-methodology.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021),
https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.
-- Operational Risk Assessment for European Structured Finance Servicers (16 September 2021), https://www.dbrsmorningstar.com/research/384513/operational-risk-assessment-for-european-structured-finance-servicers.
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (29 November 2021) and European RMBS Credit Model v 1.0.0.0, https://www.dbrsmorningstar.com/research/388848/master-european-residential-mortgage-backed-securities-rating-methodology-and-jurisdictional-addenda.
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2021), https://www.dbrsmorningstar.com/research/384920/interest-rate-stresses-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (20 September 2021), https://www.dbrsmorningstar.com/research/384624/derivative-criteria-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].