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Rating Action:

Moody's assigns definitive ratings to Ulisses Finance No. 1 a Portuguese Auto ABS issued by SAGRES - Sociedade de Titularizacao de Creditos, S.A.

10 Jul 2017

EUR 134.2 million of rated debt securities affected

Madrid, July 10, 2017 -- Moody's Investors Service ("Moody's") has assigned the following definitive ratings to notes issued by SAGRES - Sociedade de Titularizacao de Creditos, S.A. (the "Issuer"):

....EUR 120.1M Class A Asset-Backed Floating Rate Notes due March 2033, Definitive Rating Assigned A2(sf)

....EUR 7.0M Class B Asset-Backed Floating Rate Notes due March 2033, Definitive Rating Assigned Baa3(sf)

....EUR 7.1M Class C Asset-Backed Floating Rate Notes due March 2033, Definitive Rating Assigned Ba2(sf)

Moody's has not assigned ratings to the EUR 7.1M Class D and EUR 3.5M Class E Notes.

RATINGS RATIONALE

Ulisses Finance No. 1 is a revolving cash securitisation of auto receivables extended by 321Credito -- Instituicao Financeira de Credito, S.A. ("321C") to obligors located in Portugal. The revolving period ends 12 months after the closing date. The portfolio consists of auto loans extended to mainly private obligors. The originator and servicer is 321C (NR). This is the first public securitisation transaction by 321C, a small originator set up as the reformed specialised lender, under the Ulisses programme. Formerly known as BPN Credito, the company issued four public auto loan securitisations under the Chaves programme before its nationalisation and privatisation at a later stage.

As at 31 May 2017, the definitive portfolio of underlying assets consists of monthly paying standardised auto loans granted by dealerships to either private individuals 95.56% or commercial borrowers 4.44% to purchase mostly used vehicles. The agreements are granted to private individuals or commercial borrowers resident in Portugal, with mostly fixed rates 87.94% of the pool and a total outstanding balance of approximately € 141.2 million. The WA seasoning in the portfolio is 13.4 months and the WA LTV is 94%.

The transaction benefits from credit strengths such as the granularity of the portfolio, significant excess spread, counterparty support through the back-up servicer, hedge provider and independent cash manager. The transaction benefits from a closing yield of 8.98%. Available excess spread can be trapped to cover defaults and losses through the individual tranche PDLs.

However, Moody's notes that the transaction features some credit weaknesses such as operational risk, interest rate risk, arrears information has not been audited and historical performance data of loans originated by 321C is limited. However, the risks are partially mitigated by the entity's historical information from BPN Credito business from which it was derived. There is high reliance on 321C in its role as servicer, which is mitigated by the presence of a back-up servicer, Servdebt, Capital Asset Management, S.A. (NR). The interest risk is partially mitigated by the existence of an interest rate cap that protects the notes if Euribor reaches above 2.0% during the first 5 years and 4.0% afterwards. Loans assigned to the Issuer will not be more than 30 days in arrears according to the eligibility criteria. In addition, the revolving structure could increase performance volatility of the underlying portfolio. Various mitigants have been put in place in the transaction structure, such as early amortisation triggers and eligibility criteria for the portfolio additions.

Moody's analysis focused, amongst other factors, on (i) an evaluation of the underlying portfolio of auto loans and the eligibility criteria; (ii) historical performance provided on 321C total book; (iii) the credit enhancement provided by subordination, excess spread and the reserve fund; (iv) the revolving structure of the transaction; (v) the liquidity support available in the transaction by way of principal to pay interest and the reserve fund; and (vi) the overall legal and structural integrity of the transaction.

MAIN MODEL ASSUMPTIONS

Moody's determined a portfolio lifetime expected mean default rate of 7.0%, expected recoveries of 30.0% and a A1 portfolio credit enhancement ("PCE") of 22.0% for both the current and additional portfolios of the issuer. The expected defaults and recoveries capture our expectations of performance considering the current economic outlook, while the PCE captures the loss we expect the portfolio to suffer in the event of a severe recession scenario. Expected defaults and PCE are parameters used by Moody's to calibrate its lognormal portfolio loss distribution curve and to associate a probability with each potential future loss scenario in its ABSROM cash flow model to rate consumer ABS transactions.

The portfolio expected mean default rate of 7.0% is higher than the EMEA Auto ABS average and is based on Moody's assessment of the lifetime expectation for the pool taking into account (i) historic performance of the loan book of the originator, (ii) benchmark transactions, and (iii) other qualitative considerations.

Portfolio expected recoveries of 30.0% are lower than the EMEA Auto ABS average and are based on Moody's assessment of the lifetime expectation for the pool taking into account (i) historic performance of the loan book of the originator, (ii) benchmark transactions, and (iii) other qualitative considerations.

PCE of 22.0% is higher than the EMEA Auto ABS average and is based on Moody's assessment of the pool taking into account (i) a degree of uncertainty considering the depth of data Moody's received from the originator to determine the expected performance of the portfolio, and (ii) the relative ranking to the originators peers in the EMEA Auto ABS market. The PCE level of 22.0% results in an implied coefficient of variation ("CoV") of 65.4%.

METHODOLOGY

The principal methodology used in these ratings was "Moody's Global Approach to Rating Auto Loan- and Lease-Backed ABS" published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Please note that on 22 March 2017, Moody's released a Request for Comment, in which it has requested market feedback on potential revisions to its Approach to Assessing Counterparty Risks in Structured Finance. If the revised Methodology is implemented as proposed, the Credit Ratings on Ulisses Finance No. 1 are not expected to be affected. Please refer to Moody's Request for Comment, titled "Moody's Proposes Revisions to Its Approach to Assessing Counterparty Risks in Structured Finance", for further details regarding the implications of the proposed Methodology revisions on certain Credit Ratings.

The rating addresses the expected loss posed to investors by the legal final maturity of the notes. In Moody's opinion, the structure allows for timely payment of interest and ultimate payment of principal by the legal final maturity. Moody's ratings address only the credit risks associated with the transaction. Other non-credit risks have not been addressed but may have a significant effect on yield to investors.

FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:

Factors or circumstances that could lead to an upgrade of the ratings of the notes would be (1) better than expected performance of the underlying collateral; (2) increase in credit enhancement of notes due to deleveraging; or (3) a lowering of Portugal's sovereign risk leading to the removal of the local currency ceiling cap.

Factors or circumstances that could lead to a downgrade of the ratings would be (1) worse than expected performance of the underlying collateral; (2) deterioration in the credit quality of 321C; or (3) an increase in Portugal's sovereign risk.

LOSS AND CASH FLOW ANALYSIS:

Moody's used its cash flow model ABSROM as part of its quantitative analysis of the transaction. ABSROM enables users to model various features of a standard European ABS transaction - including the specifics of the loss distribution of the assets, their portfolio amortisation profile, yield as well as the specific priority of payments, swaps and reserve funds on the liability side of the ABS structure. The model is used to represent the cash flows and determine the loss for each tranche. The cash flow model evaluates all loss scenarios that are then weighted considering the probabilities of the lognormal distribution assumed for the portfolio loss rate. In each loss scenario, the corresponding loss for each class of notes is calculated given the incoming cash flows from the assets and the outgoing payments to third parties and noteholders. Therefore, the expected loss or EL for each tranche is the sum product of (i) the probability of occurrence of each loss scenario; and (ii) the loss derived from the cash flow model in each loss scenario for each tranche.

STRESS SCENARIOS:

As described in above, Moody's analysis encompasses the assessment of stressed scenarios.

MOODY'S PARAMETER SENSITIVITIES

In rating consumer loan ABS, the mean default rate and the recovery rate are two key inputs that determine the transaction cash flows in the cash flow model. Parameter sensitivities for this transaction have been tested in the following manner: Moody's tested nine scenarios derived from a combination of mean default rate: 7.0% (base case), 7.7% (base case + 0.7%), 8.40% (base case + 1.4%) and recovery rate: 30.0% (base case), 25.0% (base case - 5.0%), 20.0% (base case - 10%). The model output results for Class A Notes under these scenarios vary from A2 (base case) to A3 assuming the mean default rate is 8.4% and the recovery rate is 20.0% all else being equal.

Parameter sensitivities provide a quantitative/model indicated calculation of the number of notches that a Moody's rated structured finance security may vary if certain input parameters used in the initial rating process differed. The analysis assumes that the deal has not aged. It is not intended to measure how the rating of the security might migrate over time, but rather how the initial model output of the notes might have differed if the two parameters within a given sector that have the greatest impact were varied. Please see the pre sale report for more detailed sensitivity analysis.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

Moody's describes its loss and cash flow analysis in the section "Ratings Rationale" of this press release.

Moody's describes the stress scenarios it has considered for this rating action in the section "Ratings Rationale" of this press release.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Alberto Barbachano
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Anthony Parry
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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