Press Release

DBRS Morningstar Assigns Credit Ratings to TAGUS - Sociedade de Titularização de Créditos, S.A. (Bugio Finance No.1)

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November 23, 2023

DBRS Ratings GmbH (DBRS Morningstar) assigned credit ratings to the following classes of notes (the Rated Notes) issued by TAGUS - Sociedade de Titularização de Créditos, S.A. (Bugio Finance No.1) (the Issuer):

-- Class A Notes at AAA (sf)
-- Class B Notes at AA (low) (sf)
-- Class C Notes at A (sf)

The Issuer is a limited liability company incorporated under the laws of Portugal as a special-purpose vehicle for the purpose of issuing asset-backed securities.

DBRS Morningstar did not assign credit ratings to the Class D Notes, Class R Notes, or Class X Notes also issued in this transaction (together with the Rated Notes, the Notes). The credit 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 credit ratings on the Class B Notes and Class C Notes address the ultimate payment of interest (timely when most senior) and the ultimate repayment of principal by the legal final maturity date.

CREDIT RATING RATIONALE
The securitisation transaction constitutes the issuance of Notes backed by a pool of approximately EUR 280 million of fixed-, floating-, and mixed-rate receivables related to auto loans granted by Bicredit Sociedade Financeira de Crédito, S.A. (Bicredit; the Originator) to private individuals and commercial borrowers resident or incorporated in the Republic of Portugal. The underlying motor vehicles related to the auto loans consist of both new and used vehicles. Bicredit also services the receivables.

DBRS Morningstar’s credit ratings are based on the following analytical considerations:
-- The transaction’s structure, including the form and sufficiency of available credit enhancement to withstand stressed cash flow assumptions and repay the Issuer’s financial obligations according to the terms under which the Rated Notes have been issued.
-- The credit quality of Bicredit’s portfolio, the characteristics of the collateral, its historical performance, and DBRS Morningstar-projected behaviour under various stress scenarios.
-- Bicredit's capabilities with respect to originations, underwriting, servicing, its position in the market, and its financial strength.
-- The operational risk review of Bicredit, which DBRS Morningstar deems to be an acceptable servicer.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The to a large extent consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology. There is some linkage of the rating assigned to the Class A Notes to the financial strength of the account bank.
-- The consistency of the transaction’s hedging structure with DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology.
-- The sovereign credit rating on the Republic of Portugal, currently rated at “A” with a Stable trend by DBRS Morningstar.

TRANSACTION STRUCTURE
The transaction is static and the Class A Notes will begin to amortise from the first interest payment date. The transaction incorporates a split waterfall in which interest and principal collections from the receivables are paid in the interest priority of payments and the principal priority of payments. The Rated Notes and the Class D Notes will amortise sequentially and there will be no payment of principal on the Class B Notes until the Class A Notes have been repaid in full. The Class C Notes will only start amortising once the Class B Notes have been fully redeemed.

The transaction benefits from an amortising cash reserve funded on the closing date with the proceeds of the Class R Notes. The cash reserve is available to cover senior fees, senior net interest rate swap payments, interest on the Class A Notes, interest on the Class B Notes and interest on the Class C Notes. The reserve is set at 1.0% of the aggregate outstanding balance of the Rated Notes at closing (EUR 2.66 million) and has a floor of EUR 1.33 million.

COUNTERPARTIES
The Issuer’s accounts include the payment account, the cash reserve account, and the swap collateral account.
Deutsche Bank AG (Deutsche Bank) has been appointed to act as the account bank for the transaction. DBRS Morningstar has a Long-Term Issuer Rating of “A” with a Stable trend and a Long Term Critical Obligations Rating of AA (low) with a Stable trend on Deutsche Bank. As the replacement trigger for this counterparty has been set at BBB (high), DBRS Morningstar considers that there is a high degree of linkage of the ratings on the senior notes to the financial strength of Deutsche Bank. A downgrade of Deutsche Bank may lead to a downgrade of the Class A Notes.

The transaction is exposed to interest rate risk as the receivables sold to the Issuer pay fixed, floating, or a combination of fixed and floating interest rates while the Rated Notes pay one-month Euribor plus a margin. There is also a degree of basis risk as floating-rate loans are indexed to three-month Euribor while the Rated Notes are indexed to one-month Euribor. To mitigate the interest rate risk, the Issuer entered into an interest rate swap with BNP Paribas SA (BNP). DBRS Morningstar has a Long-Term Issuer Rating of AA (low) with a Stable trend and a Long Term Critical Obligations Rating of AA (high) with a Stable trend on BNP, which meet the criteria to act in this capacity. The hedging documents contain downgrade provisions consistent with DBRS Morningstar's criteria.

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. For the Rated Notes the associated financial obligations are the related interest amounts and principal redemption amounts.

DBRS Morningstar’s credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) 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
Environmental (E) Factors
The portfolio sold to the Issuer at closing has a high exposure to older petrol (17.8%) and diesel (81.4%) engine vehicles that are unlikely to be classified as Euro 6 (59.9% of receivables are related to vehicles registered before 2016). DBRS Morningstar considers certain risks associated with future restrictions on these types of vehicles, including bans and additional taxes. These risks may lead to changes in expected vehicle valuations and borrowers' behaviour that could subsequently influence future default, recovery, and prepayment activity. DBRS Morningstar considers that this exposure is a credit-negative, relevant environmental factor within its analysis, namely the “E” factor “Carbon and Greenhouse Gas (GHG) Costs”.

There were no Social or Governance 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: “Rating European Consumer and Commercial Asset-Backed Securitisations” (22 October 2023), https://www.dbrsmorningstar.com/research/422276/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.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit 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/421590.

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.

The sources of data and information used for these credit ratings include the Originator and its agents. DBRS Morningstar received the following data:
-- Dynamic monthly outstanding portfolio balances from Q3 2016 to Q1 2023;
-- Static gross loss default and recovery data from Q3 2016 to Q1 2023 for the total portfolio and split by interest rate type;
-- Dynamic prepayment data from September 2016 to May 2023;
-- Dynamic delinquency data from September 2016 to May 2023;
-- Loan-by-loan portfolio data and stratification tables as of 31 October 2023; and
-- A theoretical amortisation of the selected portfolio with and without maturity extensions.

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

DBRS Morningstar was not supplied with one or more third-party assessments. However, this did not impact the credit 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 newly issued financial instruments. These are the first DBRS Morningstar credit ratings on these financial instruments.

Information regarding DBRS Morningstar credit ratings, including definitions, policies, and methodologies, is available on http://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 (the base case):

-- Expected default rate: 5.7%
-- Expected recovery rate: 38.0%
-- Probability of default (PD) and loss given default (LGD): 25.7% and 73.4%, respectively, for the AAA (sf) scenario

Scenario 1: 25% increase in LGD
Scenario 2: 50% increase in LGD
Scenario 3: 25% increase in PD
Scenario 4: 50% increase in PD
Scenario 5: 25% increase in PD and 25% increase in LGD
Scenario 6: 25% increase in PD and 50% increase in LGD
Scenario 7: 50% increase in PD and 25% increase in LGD
Scenario 8: 50% increase in PD and 50% increase in LGD

DBRS Morningstar concludes that the expected credit ratings under the eight stress scenarios would be:
-- Class A Notes: AA (sf), AA (sf), AA (sf), AA (low) (sf), A (high) (sf), AA (sf), A (high) (sf), and A (sf)
-- Class B Notes: A (high) (sf), A (sf), A (high) (sf), A (low) (sf), BBB (high) (sf), A (sf), BBB (high) (sf), and BBB (sf)
-- Class C Notes: BBB (high) (sf), BBB (sf), BBB (high) (sf), BBB (low) (sf), BB (sf), BBB (low) (sf), BB (sf), and 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://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: Ricardo García, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 23 November 2023

DBRS Ratings GmbH, Sucursal en España
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Tel. +34 (91) 903 6500

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.

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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