DBRS Ratings Limited (DBRS Morningstar) assigned an A (high) rating to the Series 37 Obbligazioni Bancarie Garantite (OBG, the Italian legislative covered bonds) issued under the Intesa Sanpaolo S.p.A. (ISP or the Issuer) EUR 50 billion Covered Bonds Programme (ISP OBG or the Programme). The Programme is guaranteed by ISP OBG S.r.l. Series 37 is a EUR 1.25 billion floating-rate bond linked to three-month Euribor + 0.35% that will mature in August 2032.
All covered bonds (CBs) issued under the Programme rank pari passu with each other and are currently rated A (high) by DBRS Morningstar.
The rating reflects the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of “A”, which is the Long-Term Critical Obligations Rating of ISP. ISP is the Issuer and Reference Entity for the Programme. DBRS Morningstar classifies the Republic of Italy (rated BBB (high) with a Stable trend by DBRS Morningstar) as a jurisdiction in which CBs are a particularly important funding instrument and deems the cover pool (CP) strategic for the core activity of the Issuer.
-- A Legal and Structuring Framework (LSF) Assessment of “Adequate” assigned to the Programme.
-- An LSF-Implied Likelihood (LSF-L) of “A”.
-- A one-notch uplift for good recovery prospects.
-- The minimum overcollateralisation (OC) observed over the past four quarters is 13.5%. However, DBRS Morningstar gives credit to a limited level equal to 8%, which is the level of OC that DBRS Morningstar considers sustainable based on information from the Issuer and market developments. The Issuer commits to an asset percentage of 94.5%, which translates into an OC commitment of 5.82%.
The transaction was analysed with the DBRS Morningstar European Covered Bonds Cash Flow tool. The main assumptions focused on the timing of defaults and recoveries of the assets and interest rate stresses.
Everything else being equal, a downgrade of the CBAP by one notch would lead to a downgrade of the LSF-L by one notch, resulting in a downgrade of the CB rating by one notch. In addition, the ratings of ISP OBG would be downgraded if the quality of the CP and the level of OC were no longer sufficient to support a one-notch uplift for good recovery prospects.
The CP comprised fixed-rate (65.0% of the total outstanding balance) and floating-rate loans (35.0% of the total outstanding balance). The floating-rate mortgage loans are indexed to different plain-vanilla bases and reset at different dates. This compares with 100.0% floating-rate liabilities linked to three-month Euribor plus a spread.
Part of the interest rate risk in the transaction is hedged with swaps with Intesa Sanpaolo S.p.A. and Banco di Napoli S.p.A. (that was incorporated into ISP as of November 2018) on their respective portfolios. Swap documentation embeds DBRS Morningstar derivatives criteria and DBRS Morningstar has taken swaps into account in its cash flow analysis.
For further information on the Programme, please refer to the rating report at www.dbrs.com.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is: “Rating and Monitoring Covered Bonds”.
In DBRS Morningstar’s opinion, the changes under consideration do not require the application of the entire principal methodology. Therefore, DBRS Morningstar focused on the cash flow analysis.
A review of the transaction legal documents was limited to the documentation pertaining to the issuance of Series 37. All other transaction documents have remained unchanged since the most recent rating action.
Other methodologies referenced in this transaction are listed at the end of this press release.
These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.
For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for these ratings include investor reports and CP stratification tables provided by the Issuer.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
At the time the of initial rating, DBRS Morningstar was not supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.
DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating process.
The last rating action on this transaction took place on 8 November 2019, when DBRS Morningstar confirmed ISP OBG ratings following the completion of the Annual Review of the Programme.
Information regarding DBRS Morningstar ratings, including definitions, policies and methodologies, is available on www.dbrs.com.
For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.
Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.
Lead Analyst: Alessandra Maggiora, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 7 November 2014
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.
-- Rating and Monitoring Covered Bonds
-- Rating and Monitoring Covered Bonds Addendum: Market Value Spreads
-- Global Methodology for Rating Banks and Banking Organisations
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Operational Risk Assessment for European Structured Finance Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating CLOs and CDOs of Large Corporate Credit
-- Rating CLOs Backed by Loans to European SMEs
-- Interest Rate Stresses for European Structured Finance Transactions
-- Global Methodology for Rating Sovereign Governments
A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.
For more information on this credit or on this industry, visit www.dbrs.com or contact us at firstname.lastname@example.org.