DBRS Morningstar Assigns Provisional Ratings to Tagus – Sociedade de Titularização de Créditos, S.A. (Vasco Finance No. 1)

DBRS Ratings GmbH (DBRS Morningstar) assigned provisional ratings to the Class A, Class B, Class C, Class D, and Class E Notes (collectively, the Rated Notes) to be issued by Tagus – Sociedade de Titularização de Créditos, S.A. (Vasco Finance No. 1) (the Issuer) as follows:

-- Class A Notes at AA (high) (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 (high) (sf)

DBRS Morningstar did not assign provisional ratings to the Class F, Class R or the Class X Notes (collectively with the Rated Notes, the Notes) also expected to be issued by the Issuer.

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

The provisional ratings are based on information provided to DBRS Morningstar by the Issuer and its agents as of the date of this press release. The ratings can be finalised upon a review of the final information, data, legal opinions, and the executed version of the governing transaction documents. To the extent that the information or the documents provided to DBRS Morningstar as of this date differ from the final information, DBRS Morningstar may assign different final ratings to the Rated Notes.

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 or the originator). WiZink Portugal is the rebranding of the acquired BarclayCard operation in Portugal. The Issuer is the second credit card securitisation program established by WiZink Portugal in addition to the existing Tagus – Sociedade de Titularização de Créditos, S.A. (Victoria Finance No. 1) (Victoria Finance) established in July 2020. DBRS Morningstar notes that the Issuer and Victoria Finance both have a subset of receivables randomly selected from the entire credit card portfolio managed by WiZink Portugal and therefore expects the collateral of the Issuer to perform similarly to that of Victoria Finance.

CREDIT RATING RATIONALE
-- The transaction’s capital structure, including the form and sufficiency of available credit enhancement to support DBRS Morningstar’s expectations of the charge-off rate, monthly principal payment rate (MPPR) and yield rate under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay the Rated Notes.
-- The originator’s capabilities with respect to origination and underwriting.
-- An 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, the diversification of the collateral and the historical and projected performance of the securitised and total managed portfolios.
-- DBRS Morningstar’s sovereign rating on the Republic of Portugal at ‘A’ with a Stable trend.
-- The expected consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.

TRANSACTION STRUCTURE
The Issuer has separate waterfalls for interest and principal payments and includes a scheduled 12-month revolving period. During this period, additional receivables may be purchased by the Issuer provided that the eligibility criteria set out in the transaction documents are satisfied and existing receivables may be repurchased by the originator to reset the Issuer’s collateral equal to the balance at the transaction closing. The revolving period may end earlier than scheduled if certain events occur, such as the breach of performance triggers or a servicer termination.

After the end of the scheduled revolving period, the Notes (except the Class R Notes) will enter into a pro rata amortisation. The amortisation amounts are based on the respective percentages (which are the outstanding amount of each class of Notes divided by the aggregate Notes amount) until the breach of a sequential amortisation trigger or an event of default after which the Notes will be repaid sequentially. The transaction includes a cash reserve to cover the shortfalls in senior expenses, servicing fees, senior swap payments, and interest on the Class A Notes and, if not deferred, Class B and Class C Notes. The reserve target amount is 2% of the outstanding principal amount of the Class A, Class B and Class C Notes and would amortise down to a floor equal to 0.5% of the initial amount of the Class A, Class B and Class C Notes.

The interest rate risk for the transaction is considered limited as an interest rate swap is in place to reduce the mismatch between the fixed-rate collateral and the floating-rate Rated Notes.

COUNTERPARTIES
Deutsche Bank AG is the account bank for the transaction. Based on DBRS Morningstar’s Long-Term Issuer Rating of ‘A’ on Deutsche Bank, and the downgrade provisions outlined in the transaction documents, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned.

PORTFOLIO ASSUMPTIONS
As of July 2023, Victoria Finance reported a monthly principal payment rate (MPPR) of 8.3%, in line with the historical average of 7.8% since its closing in 2020; a yield rate of 16.2% noticeably lower than the average of 19.2% since its closing; and an annualised gross charge-off rate of 2.9%, marginally higher than the average of 2.3% since its closing.

To further assess the charge-off rates, DBRS Morningstar conducted a roll rate analysis of the delinquencies. The annualised charge-off rates based on six-month and 12-month average delinquency roll rates of the managed portfolio are estimated to be 7.1% and 6.6%, respectively.

Charge-off rates reported by Victoria Finance since its closing have been approximately at least 1% lower than those of the managed portfolio. The better performance is because of the eligibility criteria that includes receivables only up to 30 days delinquent.

DBRS Morningstar set its expected charge-off rate at 8%, the same level for Victoria Finance, in consideration of the positive selection of eligible receivables and the stable charge-off rates of the managed portfolio since Q4 2018. As the eligible receivables are less than 30 days past due and the delinquent receivables are typically charged off after 210 days past due except for the borrower's insolvency, the Issuer's charge-off levels are expected to be negligible within six or seven months after the Issuer’s inception before they start to normalise. DBRS Morningstar considers various lengths of charge-off normalisation in its cashflow analysis.

The MPPR levels of the total managed portfolio have been trending upwards and stabilised at around 6.5% since mid-2022. In addition, MPPRs reported by Victoria Finance have been on average around 1.5% higher than the managed portfolio since its closing.

DBRS Morningstar set its expected MPPR at 5.75%, the same level for Victoria Finance, based on the historical trend and the positive selection of eligible receivables.

DBRS Morningstar notes as of July 2023 the managed portfolio and Victoria Finance reported a yield of 15.0% and 16.2%, respectively. Both reported levels are lower than the latest usury rate of 17.4% applicable in the third quarter of 2023. The slightly lower reported levels are mainly driven by a promotion campaign offered by the originator between November 2022 and June 2023. However, portfolio yield is expected to rise over time when the higher usury rate is applied to new accounts and some of the older accounts with lower usury rates default and are written-off from the receivables pool.

DBRS Morningstar set its expected yield at 15.0%, the same level for Victoria Finance, in light of the prevailing performance and the potential improvement.

DBRS Morningstar’s credit ratings on the Rated Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for each of the Rated Notes are the related Interest Amounts and the related initial Principal Amount Outstanding.

DBRS Morningstar’s credit ratings do not address non-payment 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
Governance (G) Factors

In respect of appropriately defined mechanisms in the structure on how to deal with future events under the Transaction Governance, DBRS Morningstar notes that for the Issuer there is no clarity of activities to be conducted by the successor servicer as the entity remains unknown until its appointment. While the backup servicer facilitator undertakes to find a suitable replacement within 60 calendar days of a servicer termination event, the absence of clearly pre-defined tasks to be assumed by the future successor 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 collateral performance.

DBRS Morningstar considered adjustments in the cashflow analysis to account for the potential exposure, which leads to a one notch lower rating outcome than without such adjustments, and concludes there is a significant Transaction Governance factor in 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 Intex DealMaker.

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.
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 through the arranger, Société Générale S.A.

DBRS Morningstar received monthly dynamic data of the entire managed book from January 2013 to July 2023 in respect of gross charge-offs and delinquencies and from January 2015 to July 2023 in respect of receivables balances, monthly payment rates, yields, dilutions and purchase rates. DBRS Morningstar also received a set of stratification tables for the provisional securitised collateral pool as of 30 June 2023.

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.

These credit ratings concern expected-to-be-issued new financial instruments. These are the first DBRS Morningstar credit ratings on these financial instruments.

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 credit ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit ratings:

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

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

DBRS Morningstar concludes that the expected credit ratings under the four stress scenarios are:
Class A Notes: AA (high) (sf), A (high) (sf), AA (sf), and AA (low) (sf)
Class B Notes: A (high) (sf), BBB (high) (sf), A (low) (sf), and BBB (high) (sf)
Class C Notes: A (low) (sf), BBB (low) (sf), BBB (sf), and BB (high) (sf)
Class D Notes: BB (high) (sf), BB (low) (sf), BB (sf), and BB (low) (sf)
Class E Notes: B (low) (sf), B (low) (sf), B (sf), and below B (low)

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. 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: David Lautier, Senior Vice President
Initial Rating Date: 31 August 2023

DBRS Ratings GmbH
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60311 Frankfurt am Main Deutschland
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.
-- Interest Rate Stresses for European Structured Finance Transactions (22 September 2022), https://www.dbrsmorningstar.com/research/402943/interest-rate-stresses-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (16 June 2023), https://www.dbrsmorningstar.com/research/415976/derivative-criteria-for-european-structured-finance-transactions.
-- 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.

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].