Press Release

DBRS Morningstar Upgrades and Confirms Credit Ratings on TAGUS - Sociedade de Titularização de Créditos, S.A. (Ulisses Finance No.2)

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September 27, 2023

DBRS Ratings GmbH (DBRS Morningstar) took the following credit rating actions on the notes (collectively, the rated notes) issued by TAGUS - Sociedade de Titularização de Créditos, S.A. (Ulisses Finance No.2) (the Issuer):

-- Class A Notes upgraded to AA (sf) from AA (low) (sf)
-- Class B Notes upgraded to A (high) (sf) from A (low) (sf)
-- Class C Notes confirmed at BBB (low) (sf)
-- Class D Notes confirmed at BB (low) (sf)
-- Class E Notes confirmed at B (low) (sf)

The credit rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date in September 2038. The credit ratings on the Class B Notes, Class C Notes, Class D Notes, and Class E Notes address the ultimate repayment of interest (timely when most senior) and the ultimate repayment of principal by the legal final maturity date.

The credit rating actions 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 the August 2023 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 Portuguese securitisation of auto loan receivables granted and serviced by 321 Crédito – Instituição Financeira de Crédito, S.A., a subsidiary of Banco CTT S.A., after the acquisition that closed in May 2019. The transaction closed in September 2021 and included an initial 12-month revolving period, which ended on the September 2022 payment date (included). As of the August 2023 payment date, the EUR 191.0 million portfolio (excluding defaulted receivables) consisted primarily of loans granted for the purchase of used vehicles (more than 99% of the outstanding pool balance).

PORTFOLIO PERFORMANCE
As of the August 2023 payment date, loans that were one to two months and two to three months in arrears represented 1.2% and 0.3% of the portfolio balance, respectively. Gross cumulative defaults were 1.7% of the original portfolio balance, with cumulative recoveries of 13.2% to date. The good performance as well as the lower pool factor contributed to the upgrades on the Class A and Class B Notes.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and maintained its base case PD assumptions at 6.9% and its LGD assumptions at 53.9%.

CREDIT ENHANCEMENT
The subordination of the junior obligations provides credit enhancement to the rated notes. As of the August 2023 payment date, credit enhancement to the Class A, Class B, Class C, Class D, and Class E Notes was 18.5%, 14.5%, 6.5%, 2.0%, and 0.5%, respectively. The credit enhancement has remained stable because of the pro rata amortisation mechanism, until a sequential redemption event occurs.

The cash reserve account is available to cover senior expenses and interest shortfalls on the Class A Notes and on the Class B and Class C Notes if not deferred. The cash reserve account was funded at closing with EUR 1.5 million and its required balance is set at 0.6% of the rated notes balance, subject to a EUR 0.4 million floor. The cash reserve has always been at its target level since closing and, as of the August 2023 payment date, the reserve stood at EUR 1.1 million.

Deutsche Bank AG acts as the account bank for the transaction. Based on DBRS Morningstar's public Long-Term Issuer Rating on Deutsche Bank AG at “A” with a Stable trend, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar 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 DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

Deutsche Bank AG acts as the cap counterparty for the transaction. DBRS Morningstar’s public rating on Deutsche Bank AG is consistent with the credit ratings assigned to the rated notes, as described in DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology.

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.

DBRS Morningstar’s credit ratings do not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction documents 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
There were no Environmental/Social/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 the “Master European Structured Finance Surveillance Methodology” (7 February 2023), https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-methodology.

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.

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 Ratings on Other DBRS Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/401817/global-methodology-for-rating-sovereign-governments.

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/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The sources of data and information used for these credit ratings include payment reports and investor reports provided by Deutsche Bank AG and loan-level data provided by European DataWarehouse GmbH.

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

At the time of the initial credit ratings, DBRS Morningstar was supplied with 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.

The last credit rating action on this transaction took place on 28 September 2022, when DBRS Morningstar confirmed the credit ratings on the Class A, Class B, Class C, Class D, and Class E Notes at AA (low) (sf), A (low) (sf), BBB (low) (sf), BB (low) (sf), and B (low) (sf), respectively.

Information regarding DBRS Morningstar credit ratings, including definitions, policies, and methodologies, is available at 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):

-- DBRS Morningstar 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 pool of loans for the Issuer are 6.9% and 53.9%, 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. For example, if the LGD increases by 50%, the credit rating of the Class A Notes would be expected to fall to A (sf), assuming no change in the PD. If the PD increases by 50%, the credit rating of the Class A Notes would be expected to remain at AA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the credit rating of the Class A Notes would be expected to fall to BBB (sf).

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

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

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

Class E Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating below B (low) (sf)
-- 50% increase in LGD, expected credit rating below B (low) (sf)
-- 25% increase in PD, expected credit rating of B (low) (sf)
-- 50% increase in PD, expected credit rating below B (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating below B (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating below B (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating below B (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating below B (low) (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: Preben Cornelius Overas, Assistant Vice President
Credit Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Credit Rating Date: 13 September 2021

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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 info@dbrsmorningstar.com.

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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