DBRS Morningstar Confirms Credit Ratings on Tagus – Sociedade de Titularização de Créditos, S.A. (Victoria Finance No. 1)

DBRS Ratings GmbH (DBRS Morningstar) confirmed its credit ratings on the Class A, Class B, and Class C Notes (collectively, the Rated Notes) issued by Tagus – Sociedade de Titularização de Créditos, S.A. (Victoria Finance No. 1) (the Issuer) as follows:

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

The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, charge-offs, monthly principal payment rates (MPPRs), and yield rates, as of the May 2023 payment date.
-- Current available credit enhancement to the Rated Notes to cover the expected losses at their respective credit rating levels.
-- No revolving termination events have occurred.

The Issuer is a securitisation of credit card receivables granted to individuals under credit card agreements originated and serviced by WiZink Bank, S.A.U. Portuguese branch (WiZink Portugal). WiZink Portugal is the rebranding of the acquired BarclayCard operation in Portugal. The transaction closed in July 2020 and is scheduled to enter into the amortisation period in September 2023.

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

The cash reserve is currently at its target level of EUR 3.9 million, equal to the required amount of 1% of the outstanding Class A Notes balance, and is available to cover senior fees and interest on the Class A Notes.

PORTFOLIO PERFORMANCE, ASSUMPTIONS, AND KEY DRIVERS
As of May 2023, the MPPR was 7.6%, slightly below the average of 7.9% since closing; the annualised yield rate was 15.4%, noticeably lower than the average of 18.8% since closing; and the annualised gross charge-off rate was relatively low at 2.8% but marginally higher than the average of 2.3% since closing.

Charge-off rates reported by the Issuer since closing have been approximately at least 1% lower than those of the managed portfolio. The better performance is due to the eligibility criteria that excludes delinquent receivables.

Also as of the May 2023, two- to three-month arrears and more-than-three-month arrears were 0.6% and 1.1% of the outstanding portfolio balance, respectively. To further assess the charge-off rates, DBRS Morningstar conducted a roll rate analysis of delinquencies. The annualised charge-off rates based on six-month and 12-month delinquency roll rates of the managed portfolio are estimated to be 7.1% and 6.8%, respectively.

DBRS Morningstar revised its expected charge-off rate to 8% from 10.5% in consideration of the positive selection of eligible receivables and the stable charge-off rate reported by the seller since Q4 2018.

The MPPR levels reported by the seller have been trending upwards after the pandemic and stabilised at around 6.5% since mid-2022. In addition, MPPR reported by the Issuer has been on average around 1.5% higher than the managed portfolio since closing.

DBRS Morningstar revised its expected MPPR to 5.75% from 4.75% based on the historical information trend and the positive selection of eligible receivables.

As of May 2023, the yields reported by the seller (15.2%) and the Issuer (15.4%) are lower than the latest usury rate of 16.9%. The lower levels are mainly driven by a promotion campaign offered by the seller between November 2022 and June 2023. However, portfolio yield is expected to rise over time when the new higher usury rate is applied to new accounts and the defaulted older accounts with lower usury rates are written-off.

DBRS Morningstar elected to maintain its expected yield at 15.0% in light of performance in line with the prevailing expected yield and potential improvement.

COUNTERPARTIES
Elavon Financial Services DAC (Elavon) is the issuer account bank for the transaction. Based on DBRS Morningstar’s private credit ratings on Elavon, and the downgrade provisions outlined in the transaction documents, DBRS Morningstar considers the risk arising from the exposure to the issuer account bank to be consistent with the credit ratings assigned, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar’s credit ratings on the notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

DBRS Morningstar’s credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

General Considerations

Governance (G) Factors

Since last year, DBRS Morningstar has increased its review scope of backup servicing activities for credit card transactions and notes that for this transaction there is no clarity of activities to be conducted by the back-up servicer as the entity remains unknown until the appointment. While the back-up servicer facilitator undertakes to find a suitable replacement within 60 calendar days of a servicer termination event, the absence of clearly defined tasks to be assumed by the future back-up servicer creates uncertainty in respect of the execution timing and resources required. These risks may lead to changes in borrower behaviour that could subsequently affect future defaults and/or repayments. In light of these risks and potential exposure, DBRS Morningstar updated its ESG assessments for this transaction and concludes there is a relevant effect of Transaction Governance factor on the credit analysis.

There were no Environmental or Social factors that had a significant or relevant effect on the credit analysis.

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/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

DBRS Morningstar analysed the transaction structure in DBRS Morningstar’s proprietary Excel-based cash flow engine.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is the “Rating European Consumer and Commercial Asset-Backed Securitisations (19 October 2022), https://www.dbrsmorningstar.com/research/404212/rating-european-consumer-and-commercial-asset-backed-securitisations.

Other methodologies referenced in this transaction are listed at the end of this press release.

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 credit rating action.

An asset and a cash flow analysis were both conducted.

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/401817/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 credit ratings include performance and portfolio data relating to the receivables provided by the originator directly or through Société Générale S.A. and investor reports provided by InterMoney Titulización S.G.F.T., S.A.

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

At the time of the initial credit 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 credit ratings to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the credit rating process.

The last credit rating action on this transaction took place on 28 July 2022 when DBRS Morningstar confirmed its ratings on the Class A, Class B, and Class C Notes at A (high) (sf), BBB (sf), and BB (high) (sf), respectively.

The lead analyst responsibilities for this transaction have been transferred to Kevin Chiang.

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

Sensitivity Analysis: 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:

-- Expected MPPR: 5.75%
-- Expected Charge-Off Rate: 8.0%
-- Expected Yield Rate: 15.0%

-- Scenario 1: 25% decrease in expected MPPR
-- Scenario 2: 25% increase in expected charge-off rate
-- Scenario 3: 25% decrease in expected yield
-- Scenario 4: 15% decrease in expected yield, 15% decrease in expected MPPR, 15% increase in expected charge-off rate

DBRS Morningstar concludes that the expected ratings under the four stress scenarios are:
Class A Notes: A (sf), A (high) (sf), A (high) (sf), A (sf)
Class B Notes: BBB (low) (sf), BB (high) (sf), BBB (low) (sf), BBB (low) (sf)
Class C Notes: BB (sf), BB (low) (sf), BB (high) (sf), BB (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. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

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

Lead Analyst: Kevin Chiang, Senior Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 28 July 2020

DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

The credit 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 (19 October 2022), https://www.dbrsmorningstar.com/research/404212/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Rating European Structured Finance Transactions Methodology (15 July 2022), https://www.dbrsmorningstar.com/research/399899/rating-european-structured-finance-transactions-methodology.
-- Legal Criteria for European Structured Finance Transactions (30 June 2023), https://www.dbrsmorningstar.com/research/416730/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2022), https://www.dbrsmorningstar.com/research/402773/operational-risk-assessment-for-european-structured-finance-originators.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2022), https://www.dbrsmorningstar.com/research/402774/operational-risk-assessment-for-european-structured-finance-servicers.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (4 July 2023), https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.
-- Master European Structured Finance Surveillance Methodology (7 February 2023), https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-methodology.

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].