Morningstar DBRS Finalises Provisional Credit Ratings on Tagus - Sociedade de Titularização de Créditos, S.A. (Vasco Finance No. 2)

DBRS Ratings GmbH (Morningstar DBRS) finalised the provisional credit ratings on the Class A, Class B, Class C, Class D, Class E and Class X Notes (collectively, the Rated Notes) issued by Tagus - Sociedade de Titularização de Créditos, S.A. (Vasco Finance No. 2) (the Issuer) as follows:

-- Class A Notes at AA (high) (sf)
-- Class B Notes at A (sf)
-- Class C Notes at BBB (sf)
-- Class D Notes at BB (sf)
-- Class E Notes at B (sf)
-- Class X Notes at A (high) (sf)

Morningstar DBRS did not assign a credit rating to the Class F Notes or Class G Note (collectively with the Rated Notes, the Notes) also issued in this transaction.

The credit 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 credit ratings of the Class D, Class E and Class X Notes address the ultimate payment of scheduled interest and principal by the legal final maturity date.

The transaction 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 Issuer is the third 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 and Tagus - Sociedade de Titularização de Créditos, S.A. (Vasco Finance No. 1) (Vasco 1) established in September 2023. Morningstar DBRS notes that each of the Issuer, Victoria Finance and Vasco 1 has a segregated subset of receivables randomly selected from the entire credit card portfolio managed by WiZink Portugal and therefore expects the collateral performance of the Issuer to be similar to that of Victoria Finance or Vasco 1.

CREDIT RATING RATIONALE
-- The transaction's capital 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 are issued
-- The credit quality and characteristics of WiZink Portugal's portfolio, its historical performance, and Morningstar DBRS' expectation of monthly principal payment rates (MPPRs), yields, and charge-off rates under various stress scenarios
-- The capabilities of WiZink Portugal with respect to originations, underwriting, servicing, and its position in the market and financial strength
-- The transaction parties' financial strength regarding their respective roles
-- Morningstar DBRS' long-term sovereign credit rating on the Republic of Portugal, currently at "A" with a Positive trend
-- The consistency of the transaction's structure with Morningstar DBRS methodologies of "Legal Criteria for European Structured Finance Transactions" and "Derivative Criteria for European Structured Finance Transactions"

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 WiZink Portugal 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 scheduled revolving period end date, the Class A, Class B, Class C, Class D, Class E, Class F Notes and Class G Note will enter into a pro rata amortisation until the breach of a sequential amortisation trigger or an event of default after which point the redemption will be sequential and non-reversible.

On the other hand, the Class X Notes are redeemed in the transaction's interest waterfalls immediately after the transaction closing and are expected to be fully repaid within four months post-closing before the amortisation of other classes of Notes if no early termination event occurs.

The transaction includes a cash reserve to cover the shortfalls in senior expenses, servicing fees, senior swap payments, interest payments on the Class A and, if not deferred, Class B and Class C Notes. The reserve target amount is 1.9% of the outstanding Class A, Class B and Class C Notes principal amounts and would amortise down to a floor equal to 0.5% of the initial Class A, Class B and Class C Notes principal amounts.

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 Notes (excluding the Class X Notes).

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

BNP Paribas is the swap counterparty for the Issuer. Morningstar DBRS has a Long-Term Issuer Rating of AA (low) on BNP Paribas, which meets Morningstar DBRS criteria to act in such capacity. The transaction documents also contain downgrade provisions largely consistent with Morningstar DBRS criteria.

PORTFOLIO ASSUMPTIONS
As the collateral performance of the Issuer is expected to be similar to Vasco 1 and Victoria Finance, Morningstar DBRS reviewed the performance of Vasco 1 and Victoria Finance to establish the asset assumptions. As of the August 2024 payment date, the investor reports of Vasco 1 and Victoria Finance indicated MPPRs of 8.1% and 6.2%, yields of 15.4% and 13.1% and annualised charge-off rates of 4.9% and 2.4%, respectively. Based on the trends of historical performance, Morningstar DBRS set the expected MPPR, yield and charge-off rate of the Issuer at 5.75%, 15% and 8%, respectively, same as Victoria Finance and Vasco 1. Morningstar DBRS further notes that the Issuer's charge-off rates are not expected to normalise before the scheduled pro rata redemption of the Notes (excluding the Class X Notes) due to a relatively short 12-month revolving period as the receivables at closing may not be over 30 days in arrears.

Morningstar DBRS' 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 initial Principal Amount Outstanding.

Morningstar DBRS' credit ratings do not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

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, AND GOVERNANCE CONSIDERATIONS
General Considerations

Governance (G) Factors

Since 2022, Morningstar DBRS has increased its review scope of backup servicing activities for credit card transactions and noted that for this transaction there is no clarity of activities to be taken by the successor servicer, in respect of appropriately defined mechanisms in the structure on how to deal with future events under the Transaction Governance. 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 pre-defined tasks to be assumed by the future successor servicer whose identity remains unknown 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. In light of these risks and potential exposure, Morningstar DBRS conducted further cash flow sensitivities to higher servicing fees and consider the effect of Transaction Governance factor on the credit analysis to be relevant, same assessment as Victoria Finance and Vasco 1.

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

A description of how Morningstar DBRS considers environmental, social and governance (ESG) factors within the Morningstar DBRS analytical framework can be found in the "Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings" at https://dbrs.morningstar.com/research/437781.

Morningstar DBRS analysed the transaction structure in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to these credit ratings is "Rating European Consumer and Commercial Asset-Backed Securitisations" (18 September 2024), https://dbrs.morningstar.com/research/439583.

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

The credit rating of the Class X Notes materially deviates from the higher level implied by the cashflow analysis that would occur from the literal application of the methodologies. Morningstar DBRS typically expects there would be a substantial likelihood that a reasonable investor or other user of the credit ratings would consider a three or more notches difference from the analytical stresses implied by the application of the relevant methodologies to be a significant factor in evaluating the credit ratings. As the Class X Notes do not benefit from the liquidity support provided by the cash reserve and the related unpaid interest is deferrable without becoming due and payable, Morningstar DBRS therefore assigned an A (high) (sf) credit rating commensurate with the ultimate payment of scheduled interest and the servicing arrangement discussed in the ESG analytical framework above.

Morningstar DBRS 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 credit ratings, please refer to "Appendix C: The Impact of Sovereign 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 the portfolio data and performance provided by WiZink Portugal through the arranger, BNP Paribas, and the investor reports of Victoria Finance and Vasco 1 provided by InterMoney Titulización S.G.F.T., S.A.

Morningstar DBRS received monthly dynamic data of the entire managed book from January 2013 to August 2024 in respect of gross charge-offs and delinquencies and from January 2015 to August 2024 in respect of receivables balances, monthly payment rates, yields, dilutions, and purchase rates. Morningstar DBRS also received a set of stratification tables for the collateral pool as of 3 October 2024.

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

Morningstar DBRS was supplied with third-party assessments at the transaction closing. 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.

These credit ratings concern newly issued financial instruments. These are the first Morningstar DBRS credit ratings on these financial instruments.

These are the first rating actions since the Initial Rating Date.
Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com.

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

-- Expected MPPR: 5.75%
-- Expected Yield: 15%
-- Expected Charge-Off Rate: 8%

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

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

No sensitivity analysis was conducted on the Class X Notes.

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: Roberto Perez, Assistant Vice President
Rating Committee Chair: Paolo Conti, Associate Managing Director
Initial Rating Date: 23 September 2024

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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.

-- Rating European Consumer and Commercial Asset-Backed Securitisations (18 September 2024), https://dbrs.morningstar.com/research/439583
-- Rating European Structured Finance Transactions Methodology (18 September 2024), https://dbrs.morningstar.com/research/439581
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2024),
https://dbrs.morningstar.com/research/439913
-- Legal Criteria for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435165
-- Operational Risk Assessment for European Structured Finance Originators and Servicers (18 September 2024),
https://dbrs.morningstar.com/research/439571
-- Derivative Criteria for European Structured Finance Transactions (6 September 2024),
https://dbrs.morningstar.com/research/439043
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024),
https://dbrs.morningstar.com/research/437781

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/439604.

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