Morningstar DBRS Confirms Its Credit Rating on TAGUS Sociedade de Titularização de Créditos, S.A. (Aqua Mortgage No. 1)

DBRS Ratings GmbH (Morningstar DBRS) confirmed its AAA (sf) credit rating on the EUR 203,176,000 Class A Mortgage-Backed Floating Rate Notes (the Class A Notes) issued by Tagus Sociedade de Titularização de Créditos, S.A. (Aqua Mortgage No. 1) (the Issuer).

The credit rating on the Class A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the respective legal final maturity date in December 2063.

CREDIT RATING RATIONALE
The confirmation follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the September 2024 payment date;
-- Portfolio default rate (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the AAA (sf) credit rating level.

The transaction is a securitisation collateralised by a portfolio of Portuguese first-lien residential mortgage loans originated by Finibanco S.A., acquired by Caixa Económica Montepio Geral (Montepio) in 2011, and currently serviced by Montepio. The Class A Notes were issued under the Sociedade de Titularização de Créditos regime. The transaction closed in December 2008 and Morningstar DBRS assigned a credit rating in March 2011. The deal had a two-year revolving period, which terminated in January 2011.

As of the September 2024 payment date, the balance of the Class A Notes was EUR 30.8 million. The EUR 44.25 million securitised portfolio (excluding defaulted and written-off receivables) consists of first-ranking loans over residential properties located mainly in Lisbon (20.1%), Porto (17.1%), Faro (14.6%), and Aveiro (12.2%).

PORTFOLIO PERFORMANCE
As of the September 2024 payment date, delinquencies more than 90 days represented 0.1% of the outstanding portfolio balance. Gross cumulative defaulted loans totaled 12.5% of the aggregate original portfolio balance, with cumulative recoveries of 99.0% to date (including proceeds from defaulted loans that Montepio repurchased in July 2019).

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base case PD and LGD assumptions to 2.6% and 10.1% respectively.

CREDIT ENHANCEMENT
The subordination of the junior obligations and cash reserve provide credit enhancement to the Class A Notes. As of the September 2024 payment date, the credit enhancement to the Class A Notes decreased slightly to 33.4% from 33.6% at the time of the last annual review 12 months ago. The decrease in the credit enhancement arose from EUR 434,913.22 principal repurchases in the February 2024 payment date which were not used to repay the Class A Notes.

The Class A Notes repay principal on a pro rata basis when the pro rata test is satisfied, otherwise on a sequential basis. As of the September 2024 payment date, there was no debit balance outstanding on the principal deficiency ledgers (PDL). As a result, the pro rata test will be satisfied on the following payment date in October 2024, and the Class A Notes will continue amortising pro rata.

The transaction benefits from an amortising cash reserve, available to cover senior expenses and interest payments on the Class A Notes and to cure the Class A PDL. This reserve was funded at closing with EUR 3.5 million with the proceeds of the Class C Notes issuance and, as of the September 2024 payment date, was at its target level of EUR 1.3 million. The cash reserve account required balance is equal to 3.0% of the portfolio balance, subject to a EUR 1.2 million floor.

Deutsche Bank AG, London Branch (DB London) acts as the account bank for the transaction. Based on Morningstar DBRS' private rating on DB London and the mitigating factors inherent in the transaction structure, Morningstar DBRS considers the risk arising from the exposure to the account bank to be consistent with the credit rating assigned to the Class A Notes, as described in Morningstar DBRS' "Legal 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, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/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 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 the credit rating is the Master European Structured Finance Surveillance Methodology (6 August 2024) https://dbrs.morningstar.com/research/437540.

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

Morningstar DBRS 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.

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 this credit rating include investor reports provided by DB London (as transaction manager), servicer reports provided by Montepio, and loan-level data provided by the European DataWarehouse GmbH.

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

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

Morningstar DBRS considers the data and information available to it for the purposes of providing this credit rating 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 action on this issuer took place on 27 October 2023 when Morningstar DBRS confirmed its credit rating on the Class A Notes at AAA (sf).

The lead analyst responsibilities for this transaction have been transferred to Preben Cornelius Overas.

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 rating, Morningstar DBRS considered the following stress scenarios as compared with the parameters used to determine the credit rating (the base case):

-- Morningstar DBRS expected a lifetime base case PD and LGD for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.
-- The base case PD and LGD of the current pool of loans for the Issuer are 2.6% and 10.1% respectively.
-- The Risk Sensitivity overview below illustrates the credit ratings expected if the PD and LGD increase by a certain percentage over the base case assumption.

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD, expected credit rating of AAA (sf)
-- 50% increase in PD, expected credit rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AAA (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.

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Preben Cornelius Overas, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Associate Managing Director
Initial Rating Date: 28 March 2011

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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.

-- Legal Criteria for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435165.
-- Master European Structured Finance Surveillance Methodology (6 August 2024), 
https://dbrs.morningstar.com/research/437540.
-- Operational Risk Assessment for European Structured Finance Originator and Servicers (18 September 2024),
https://dbrs.morningstar.com/research/439571.
-- European RMBS Insight Methodology (18 September 2024) and European RMBS Insight Model v10.0.0.0,
https://dbrs.morningstar.com/research/439573.
-- European RMBS Insight: Portuguese Addendum (19 April 2024), 
https://dbrs.morningstar.com/research/431376.
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2024), 
https://dbrs.morningstar.com/research/439913.
-- 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.