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

DBRS Ratings GmbH (Morningstar DBRS) confirmed the following credit ratings on the notes (collectively, 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 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 in September 2042. 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 confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of October 2024 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement to the rated notes to cover the expected losses at their respective credit rating levels.

The transaction is a securitisation collateralised by approximately EUR 223 million worth of fixed-, floating-, and mixed-rate receivables as of the October 2024 payment date, related to amortising auto loans granted by Bicredit, Sociedade Financeira de Crédito, S.A. (Bicredit) to borrowers in the Republic of Portugal. The underlying receivables relate to the financing of new and used vehicles. Bicredit also services the receivables. The transaction closed in November 2023 and the notes have been amortising on a sequential basis since then.

PORTFOLIO PERFORMANCE
As of the October 2024 payment date, loans that were one to two months and two to three months delinquent represented 0.8% and 0.3% of the portfolio balance, respectively, while loans more than three months delinquent represented 1.1%. Gross cumulative defaults amounted to 1.4% of the original collateral balance, of which 10.0% have been recovered to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and maintained its base case PD and LGD assumption at 5.7% and 62.0%, respectively.

CREDIT ENHANCEMENT
The subordination of the junior obligations provides credit enhancement to the rated notes. As of the October 2024 payment date, credit enhancement to the Class A, Class B and Class C Notes was 17.9%, 10.3% and 5.3%, respectively, up from 15.0%, 9.0% and 5.0% at closing. Morningstar DBRS also noted that in the past only written-off loans were recorded on the principal deficiency ledger (PDL), as opposed to defaulted amounts. The Issuer has confirmed that by the November 2024 payment date, this will be corrected. As a sensitivity analysis, Morningstar DBRS had considered the unrecorded defaulted amount as losses in its cash flow analysis. Following the correction of the misapplication of the PDL, Morningstar DBRS now expects a further increase in credit enhancement.

The transaction benefits from a cash reserve, fully funded at closing. The cash reserve has a target balance equal to 1.0% of the rated notes subject to a floor of EUR 1.3 million. The cash reserve is available to cover senior fees, swap payments, and interest on the Class A, Class B, and Class C Notes. The cash reserve is at its target level as of the October 2024 payment date.

Deutsche Bank AG acts as the account bank for the transaction. Based on Morningstar DBRS' reference rating of A (high) on Deutsche Bank (one notch below its Long Term Critical Obligations Rating of AA (low)), the downgrade provisions outlined in the transaction documents, and other 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 ratings assigned to the rated notes, as described in Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology.

BNP Paribas SA is the swap counterparty to the transaction and has a Morningstar DBRS reference rating of AA, one notch below its Long-Term Critical Obligations Rating of AA (high), 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, AND 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). Morningstar DBRS 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' behavior that could subsequently influence future default, recovery, and prepayment activity. Morningstar DBRS considers this exposure as a relevant environmental factor within its analysis, namely the "E" factor "Carbon and Greenhouse Gas (GHG) Costs". This is credit negative but did not affect the credit rating.

There were no Social or 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 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 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 these credit ratings include servicer reports provided by Bicredit, investor reports provided by Deutsche Bank, 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 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.

This is the first credit rating action since the Initial Rating Date.

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 5.7% and 62.0% 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 AA (high) (sf)
-- 50% increase in LGD, expected credit rating of AA (high) (sf)
-- 25% increase in PD, expected credit rating of AA (high) (sf)
-- 50% increase in PD, expected credit rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AA (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AA (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of A (high) (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of A (high) (sf)
-- 50% increase in LGD, expected credit rating of A (high) (sf)
-- 25% increase in PD, expected credit rating of A (high) (sf)
-- 50% increase in PD, expected credit rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of A (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of BBB (sf)

Class C Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of BBB (high) (sf)
-- 50% increase in LGD, expected credit rating of BBB (sf)
-- 25% increase in PD, expected credit rating of BBB (high) (sf)
-- 50% increase in PD, expected credit rating of BBB (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of BBB (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of BB (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of BB (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of B (high) (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: Preben Cornelius Overas, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Associate Managing Director

Initial Rating Date: 23 November 2023

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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 (6 August 2024)
https://dbrs.morningstar.com/research/437540.
Legal Criteria for European Structured Finance Transactions (28 June 2024)
https://dbrs.morningstar.com/research/435165.
Derivative Criteria for European Structured Finance Transactions (6 September 2024)
https://dbrs.morningstar.com/research/439043.
Operational Risk Assessment for European Structured Finance Originators and Servicers (18 September 2024) https://dbrs.morningstar.com/research/439571.
Interest Rate Stresses for European Structured Finance Transactions (24 September 2024) https://dbrs.morningstar.com/research/439913.
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.
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.