Morningstar DBRS Confirms Credit Ratings on Portuguese Electricity Tariff Securitisations

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit ratings on the notes issued by two Portuguese electricity tariff securitisations (the PT Electricity Tariff Transactions), as follows:

-- TAGUS SOCIEDADE DE TITULARIZAÇÃO DE CRÉDITOS, S.A. (EnergyOn No. 1), Class A1 at A (high) (sf)
-- TAGUS SOCIEDADE DE TITULARIZAÇÃO DE CRÉDITOS, S.A. (EnergyOn No. 1), Interest Rate Swap (IRS) at A (high) (sf)
-- TAGUS SOCIEDADE DE TITULARIZAÇÃO DE CRÉDITOS, S.A. (EnergyOn No. 2), Class A at A (high) (sf)

The confirmations follow an annual review of the transactions and are based on the following analytical considerations:
-- The linkage between the performance of the sovereign and the performance of the securities issued by the PT Electricity Tariff Transactions. Morningstar DBRS' Sovereign Group confirmed the Republic of Portugal's (Portugal) Long-Term Foreign and Local Currency - Issuer Ratings at "A" with a Positive trend in July 2024;
-- No expected adverse change in the legal or regulatory framework;
-- No exposure to the credit risk of any specific entity in the transaction.

The credit ratings on the notes address the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date in May 2025.

The PT Electricity Tariff Transactions are static securitisations of Portuguese electricity tariff receivables (Credit Rights) assigned to the Issuer, TAGUS Sociedade de Titularização de Créditos, S.A., by EDP - Serviço Universal, S.A. - NR (EDP-SU). Pursuant to the Portuguese Decree-Law 29/2006 (as subsequently amended and republished), EDP-SU has the right to recover any amounts arising from the difference between the costs of acquiring electricity under the special regime generation according to administrative prices and the sale price of the respective electricity valued according to market prices. All Portuguese electricity consumers pay the Credit Rights through their inclusion in the tariffs on a permanent basis as a component of the Global Use of System Tariff, or total rate per unit paid by end consumers.

Based on Morningstar DBRS' "Rating Portuguese Electricity Tariff Securitisations" methodology, the credit ratings on securities issued by the PT Electricity Tariff Transactions are limited to a maximum two-notch uplift from the current local currency sovereign rating on Portugal.

In addition, the IRS payments to EnergyOn No. 1's Swap Counterparty are senior to the Class A1 notes in the priority of payments and are based on Morningstar DBRS' "Rating Portuguese Electricity Tariff Securitisations" methodology. The credit rating on the IRS is also limited to a maximum two-notch uplift from Portugal's current local currency sovereign rating.

Deutsche Bank AG, London Branch (DB London) acts as the account bank for the two PT Electricity Tariff Transactions. Based on the Morningstar DBRS private rating on DB London, the downgrade provisions outlined in the transactions documents, and structural mitigants inherent in the transaction structures, Morningstar DBRS considers the risk arising from the exposure to DB London to be consistent with the credit ratings assigned to the notes, as described in Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology.

DB London is the Swap Counterparty of EnergyOn No. 1 and Banco Santander SA is the Swap Counterparty of EnergyOn No. 2. The Morningstar DBRS private rating on DB London and the Morningstar DBRS Long-Term Critical Obligations Rating of AA (low) on Banco Santander SA are consistent with the First Rating Threshold as defined in Morningstar DBRS' "Derivative Criteria for European Structured Finance Transactions" methodology.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS 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

Social (S) Factors  
The transaction's performance is dependent on the creditworthiness of the Portuguese sovereign. Morningstar DBRS considers some of the key drivers behind the latest rating action on Portugal, namely Human Capital and Human Rights, to be a significant rating factor. According to the World Bank, Portugal's per capita GDP was relatively low at USD 27,275 in 2023 compared with its euro system peers. This factor was taken into account in the "Economic Structure and Performance" building block of Morningstar DBRS' Global Methodology for Rating Sovereign Governments.

Credit rating actions on Portugal are likely to have an impact on these credit ratings. ESG factors that have a significant or relevant effect on the credit analysis of Portugal are discussed separately at https://dbrs.morningstar.com/research/436415.

There were no Environmental/Governance factors that had a significant or relevant effect on the credit analysis.
 
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://dbrs.morningstar.com/research/427030.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is the Master European Structured Finance Surveillance Methodology (7 March 2024), https://dbrs.morningstar.com/research/429051.

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

Morningstar DBRS has applied the principal methodology consistently and conducted a review of the transactions in accordance with the principal methodology.

A review of the transactions legal documents was not conducted as the legal documents have remained unchanged since the most recent credit rating actions.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit ratings, please refer to "Appendix C: The Impact of Sovereign Credit Ratings on Other Morningstar DBRS Credit Ratings" of the "Global Methodology for Rating Sovereign Governments" at: https://dbrs.morningstar.com/research/436000.

The sources of data and information used for these credit ratings include investor reports provided by DB London for both EnergyOn No. 1 and EnergyOn No. 2.

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

At the time of the initial credit ratings, Morningstar DBRS was not supplied with third-party assessments. However, this did not impact the credit rating analysis.

Morningstar DBRS considers the data and information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

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

The last credit rating actions on these transactions took place on 3 August 2023, when Morningstar DBRS upgraded its credit ratings on the notes in both transactions and the IRS in EnergyOn No. 1 to A (high) (sf) from A (sf).

The lead analyst responsibilities for these transactions have been transferred to Daniel Rakhamimov.

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit ratings, Morningstar DBRS considered the following stress scenarios, as compared with the parameters used to determine the credit ratings (the Base Case):

-- A hypothetical downgrade of the sovereign rating of Portugal by one notch, ceteris paribus, would likely lead to a downgrade of the rated notes to A (sf).
-- A hypothetical downgrade of the sovereign rating of Portugal by two notches, ceteris paribus, would likely lead to a downgrade of the rated notes to A (sf).
-- A hypothetical upgrade of the sovereign rating of Portugal by one notch, ceteris paribus, would likely lead to an upgrade of the rated notes to AA (low) (sf).
-- A hypothetical upgrade of the sovereign rating of Portugal by two notches, ceteris paribus, would likely lead to an upgrade of the rated notes to AA (low) (sf).

For further information on Morningstar DBRS 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 Morningstar DBRS 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: Daniel Rakhamimov, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Associate Managing Director
Initial Credit Rating Date: 8 April 2011

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Tel. +49 (69) 8088 3500
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The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (7 March 2024),
https://dbrs.morningstar.com/research/429051
-- Rating Portuguese Electricity Tariff Securitisations (11 September 2023),
https://dbrs.morningstar.com/research/420474
-- Legal Criteria for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435165
-- Interest Rate Stresses for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435278
-- Derivative Criteria for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435260
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024), https://dbrs.morningstar.com/research/427030

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/278375.

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.