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Fitch Affirms Douro SME 2 at 'A+sf'; Revises Outlook to Positive.

Madrid/London: Fitch Ratings has affirmed Sagres STC S.A. Douro SME No. 2's EUR1,819,400,000 class A notes (ISIN: PTSSCMOM0000) at 'A+sf' and revised the Outlook to Positive from Stable.

The transaction is a cash flow securitisation of term loans, credit lines and commercial paper facilities granted by Banco BPI, S.A. (BBB-/Positive/F3) to small and medium-sized enterprises in Portugal.

The rating addresses the timely payment of interest and the ultimate payment of principal on the class A notes, in accordance with the terms and conditions of the documentation.


Sovereign Cap

The rating is capped at the highest possible level for Portuguese structured finance transactions, which is six notches above the Portugal's Issuer Default Rating (BB+/Positive/B). Accordingly, the Positive Outlook on the class A notes reflects that on the sovereign.

Large Credit Enhancement

The class A notes benefit from large credit enhancement (45%) provided by the subordination of the class B notes and the reserve fund. In addition, excess spread provides additional protection to the transaction as the weighted average interest paid by the loans is 2.3% as of August 2017, compared with a 0.15% margin over Euribor paid to the class A notes. The portfolio has 2.7% of fixed loans while the maximum allowed concentration of fixed rate loans is 10%.

Reduced Top Obligors Exposure

The exposure to large obligors in the current portfolio has materially improved as obligors representing more than 50bp of the total performing balance have decreased to 13% from 23% since the last annual review. However, the transaction is still exposed to negative migration towards higher concentration levels during the two remaining years of revolving period, which will terminate in December 2019 (if no early termination trigger is breached before then).

Bank Benchmark

Fitch has maintained a bank benchmark assumption of 4%, markedly lower than the country benchmark of 6.0% based on historical performance information from the originator's loan book from 2010-2015 and the transaction performance during the last year. The default rates in 2014/2015 were already significantly below the benchmark of 4%. However, the bank internal rating model only covers 79% of the portfolio.

Fully Funded Reserve Fund

The reserve fund is fully funded at the required level of 5% of the class A notes balance (EUR90.97 million). The reserve fund can be used to reduce payment interruption risk on the class A notes. It can also be used to amortise the class A notes if they can be fully redeemed by releasing the reserve.


Changes in Portugal's sovereign rating may affect the ratings of the senior notes.


Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.


Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that affected the rating analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

Prior to the transaction closing, Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated no adverse findings material to the rating analysis.

Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.


The information below was used in the analysis.

- Loan-by-loan data provided by European Data Wareohuse as at 31 August 2017.

- Transaction reporting provided by BPI and Citibank as at 31 August 2017.
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Publication:Daily the Pak Banker (Lahore, Pakistan)
Geographic Code:4EUPR
Date:Feb 5, 2018
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