Morningstar DBRS Confirms Credit Ratings on Two TAGUS - Sociedade De Titularização De Créditos, S.A. (Ulisses Finance)

Why It Matters

The confirmation underscores the resilience of Portuguese auto‑loan ABS, reassuring investors that credit enhancement and low default rates sustain strong ratings despite modest ESG concerns.

Key Takeaways

• Ulisses Finance No.2 Class A/B notes retain AA rating (high).
• Ulisses Finance No.3 Class B notes rated A (high).
• Portfolio defaults under 5% with 20‑30% recovery rates.
• Credit enhancement stays above 15% for senior notes; reserves stable.
• ESG risk limited to older diesel vehicles, deemed not material.

Pulse Analysis

Morningstar DBRS’s latest rating confirmation for the Ulisses Finance No.2 and No.3 asset‑backed securities highlights the robustness of Portugal’s auto‑loan market. Both securitizations, backed by 321 Crédito’s consumer auto loans, retain high‑grade AA ratings on their senior tranches, reflecting solid underwriting and a well‑structured waterfall that prioritises senior investors. In a European structured‑finance landscape where rating agencies are tightening standards, maintaining AA (high) signals that the underlying loan pool continues to meet stringent credit quality thresholds.

The underlying portfolios exhibit modest stress, with arrears of 1.7‑1.9% and cumulative defaults just under 5%, offset by recoveries of 20‑30% that bolster expected loss calculations. Morningstar DBRS’s base‑case probability of default (PD) of 6.9% and loss‑given‑default (LGD) of 53.9% remain unchanged, and the credit enhancement—ranging from 16‑18.5% for senior classes to sub‑1% for the most junior—provides a buffer against adverse scenarios. Stress‑test results show that even with a 50% rise in PD and LGD, senior AA notes would only slip to A, underscoring the transaction’s resilience.

While the ESG review flags exposure to older petrol and diesel vehicles, the agency deems the environmental risk non‑material, noting that future emissions regulations are unlikely to materially affect cash flows. This nuanced ESG assessment, combined with stable credit enhancement and a €1.5 million reserve (≈$1.6 million), reinforces investor confidence in European consumer ABS. As banks and investors seek diversified, high‑quality structured‑finance assets, the Ulisses Finance deals serve as a benchmark for credit‑enhanced, low‑default securitizations in the region.