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Rating Action:

Moody's assigns ratings to EnergyOn No.1 Class A1 Notes issued by Tagus -- STC, S.A.

06 Mar 2009

Approx €1.25billion of debt securities rated

London, 06 March 2009 -- Moody's Investors Service has assigned definitive ratings to the following notes issued by Tagus -- Sociedade de Titularização de Créditos, S.A. (the "Issuer"):

- Aaa to the €1,253,450,000 Class A1 Asset Backed Floating Rate Securitisation Notes due 2025 (the "Notes")

Moody's has not rated the Class A2 Notes and the Class B Notes also issued by the Issuer.

This is a securitisation of Credit Rights relating to the Extraordinary Deviations that arose as a result of costs incurred by EDP -- Serviço Universal, S.A. (the "Originator") during 2007 and 2008. The high electricity prices experienced in the wholesale markets, in particular since the end of 2007, led the Originator, in its capacity as the Last Recourse Supplier in Portugal, to incur actual electricity acquisition costs that were substantially higher than that estimated by Entidade Reguladora dos Serviços Energéticos (Energy Services Regulatory Authority ("ERSE"), when the latter fixed the Regulated End-User Tariffs for 2007 and 2008 (the "Extraordinary Deviations"). The Extraordinary Deviations (including interest accrued thereon until 31st December 2009) have been determined by ERSE to be in the amount of €1,275,682,000 by 31st December 2009. This is the first transaction of such asset type in Portugal.

During its analysis, Moody's noted that the transaction benefits from certainty that the Credit Rights relating to the Extraordinary Deviations are recognised and the repayment mechanism has been enacted by a Decree-Law and a series of corresponding Ministerial Orders (the "Enactments"). In addition, the Enactments set out the obligation of ERSE to: (i) establish any regulations necessary for the execution of the repayment mechanism set out in the relevant legislation, (ii) ensure that the Extraordinary Deviations (with interest thereon) are reflected in any tariff that would be invoiced by the suppliers to all electricity consumers in Portugal and (iii) ensure that the payment of the Extraordinary Deviations to the respective owner of the Credit Rights is made on time until their full repayment.

The Enactments further provide that it is the legal obligation of the Distribution Grid Operator ("DGO") -- currently EDP Distribuição - Energia, S.A. -- to recover the Extraordinary Deviations component of the tariff set by ERSE, acting as agent of the Portuguese electricity sector and to deliver the amounts payable in respect of the Credit Rights to the owner of the Credit Rights (i.e. the Issuer). Moody's further understands that to the extent any timing and/or amount differences (positive or negative) arise for the DGO between the monthly payments it makes to the Issuer and the tariff it collects from suppliers, it is the responsibility of the DGO to bear such costs and/or timing mismatch. Nonetheless, to the extent such differences arise, the DGO shall have the right to recover such deviations (if the deviation is positive) or to reimburse such excess amounts collected by having the level of allowed revenues (which is set by ERSE on each regulated entity, including the DGO) increased or decreased for a level of two years following the occurrence of the deviations. In the unlikely event that the current DGO were to become insolvent whilst amounts due to be transferred to the Issuer remain commingled with the other assets of the insolvent DGO, the Enactments provide that such amounts shall not constitute part of the insolvency estate of the DGO. In addition, to the extent amounts are not paid to the Issuer as a result of such events, ERSE is obliged to take into account the amount actually received by the Issuer in calculating the annuity amounts payable in successive years. Therefore, missed payments would simply be required to be repaid through higher annuity amounts payable to the Issuer in successive years. The transaction is therefore not exposed to the credit risk of any entity within the Portuguese electricity sector nor to volumetric risk (i.e. variations in electricity consumption).

The transaction relies on the ability of the Portuguese electricity sector to generate sufficient revenues during the 15 year period to repay the Extraordinary Deviations in full. In this respect, Moody's notes that the Extraordinary Deviations amount to approximately one quarter of the allowed revenues of approximately €5.1billion of the electricity sector in 2009. If it is assumed a modified 3-mth Euribor rate of 4.0% is used to accrue interest on the Extraordinary Deviations, each annual instalment necessary to repay the total amount in full by the end of the 15 year period would equal approximately €115million. This would amount to approximately 2.30% of electricity sector allowed annual revenues for 2009.

In addition, to the extent that the DGO fails to transfer monthly amounts to the issuer because of, amongst other things, administrative error or insolvency, the Notes benefit from an embedded liquidity line equal to 3 consecutive months worth of interest payable on the Notes provided by the swap counterparty. Moody's considers this interruption risk to be commensurate with the ratings assigned on the Notes. Moody's therefore believes that the ability for the SEN to generate sufficient revenues to repay the Extraordinary Deviations in full by the legal final maturity of the transaction to be commensurate with the ratings assigned on the Notes.

The ratings address the expected loss posed to investors by the legal final maturity. In Moody's opinion the structure allows for timely payment of interest and ultimate payment of principal at par on or before the rated final legal maturity date. Moody's ratings address only the credit risks associated with the transaction. Other non-credit risks, including a change in law risk which may impact the Notes if the Enactments were overturned by the Portuguese Government in the future, have not been addressed, but may have a significant effect on yield to investors.

Date of previous rating action: no previous rating action. Please refer to the New Issue Report dated 4 March 2009 for a detailed discussion of the rating analysis.

For further information and in order to receive the New Issue Report, please visit www.moodys.com or contact Moody's Client Desk in London at +44-20-7772 5454.

London
Benedicte Pfister
Managing Director
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Ning Loh
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns ratings to EnergyOn No.1 Class A1 Notes issued by Tagus -- STC, S.A.
No Related Data.
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