OREANDA-NEWS. Fitch Ratings has affirmed Sagres STC S.A. / Douro SME No.2's class A notes, as follows:

EUR1,819,400,000 Class A (ISIN: PTSSCMOM0000): affirmed at 'A+sf'; Outlook Positive

KEY RATING DRIVERS

The affirmation reflects adequate credit enhancement to withstand Fitch's 'A+sf' rating stress. Fitch has modelled a worst case portfolio as allowed by the replenishment criteria during the revolving period ending March 2017. This addresses the risk of underwriting changes and the subsequent deterioration of the credit profile of the assets.

Reinvestment is conditional, among others, on the portfolio's performance. The transaction will amortise early if the net default ratio exceeds 7% of the outstanding balance. The net default ratio as of end-November 2014 was 4.5%, compared with 4.7% as of end-November 2013. The principal deficiency ledger is zero at present because the transaction generates sufficient excess spread to provision for defaults.
The net default ratio is defined as aggregate principal outstanding balance of loans more than 90 days in arrears, plus all written off loans minus any recovery proceeds, divided by the total outstanding balance.

A residual funding note provides variable overcollateralisation to address the risk of set-off in the structure. The residual funding note currently stands at EUR237m compared with EUR363m at closing. Fitch has not considered in its analysis the overcollateralisation provided by assets funded by the residual funding note.

The class A notes benefit from 45% credit enhancement from the overcollateralisation of assets funded with the unrated subordinated class B notes and the reserve fund. The reserve fund is fully funded at the required level of 5% of the class A notes balance (EUR91m). The reserve fund can be used to reduce interest payment interruption risk on the class A notes. It can also be used to amortise the class A notes if the class A notes can be fully redeemed by releasing the reserve.

The class A notes' rating is at the highest possible rating for a Portuguese SF transaction. This is six notches above the rating of Portugal (BB+/Positive/B), according to Fitch's criteria.

RATING SENSITIVITIES

Applying a 1.25x default rate multiplier to all assets in the portfolio could result in a downgrade of the class A notes by one rating category.

Applying a 0.75x recovery rate multiplier to all assets in the portfolio would not result in a downgrade of the class A notes.