DBRS Ratings GmbH (DBRS Morningstar) assigned a AA (low) rating to the Series 15 (ISIN IT0005398380) Obbligazioni Bancarie Garantite (OBG; the Italian legislative covered bonds) issued under the Banca Nazionale del Lavoro S.p.A. Covered Bonds Programme (BNL OBG or the Programme).
Concurrently, DBRS Morningstar discontinued its rating on Series 11 (ISIN IT0005321499), which was repaid on 28 January 2020.
As of today, and including the newly issued series, there were six series of OBG under the Programme, totalling an outstanding nominal amount of EUR 11.0 billion. The series are guaranteed by Vela OBG S.r.l. All covered bonds issued under the Programme rank pari passu with each other and are currently rated AA (low) by DBRS Morningstar.
The rating reflects the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of AA (low). Banca Nazionale del Lavoro S.p.A. (BNL) is the Issuer and reference entity (RE) for the programme. There is no Critical Obligations Rating associated with the RE, but DBRS Morningstar classifies Italy as a jurisdiction for which covered bonds (CB) are a particularly important financing tool.
-- A Legal and Structuring Framework (LSF) Assessment of “Modest” associated with the Programme.
-- An LSF-Implied Likelihood (LSF-L) of AA (low).
-- No uplift for recovery prospects.
-- A level of overcollateralisation (OC) of 3.6% to which DBRS Morningstar gives credit, which is the minimum observed OC level over the past 12 months adjusted by a scaling factor of 0.85.
The transaction was analysed using the DBRS Morningstar European Covered Bond 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 one-notch downgrade of the CBAP would lead to a one-notch downgrade of the LSF-L, resulting in a one-notch downgrade of the CB ratings.
BNL acts as the account bank for this transaction. Based on its rating and on the replacement provisions included in the documentation, DBRS Morningstar considers the risk of such counterparty to be consistent with the rating assigned, in accordance with its “Legal Criteria for European Structured Finance Transactions” and “Rating and Monitoring Covered Bonds” methodologies.
BNL acts also as cover pool (CP) swap counterparty; however, the swap documentation is not in line with DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology. Therefore, no credit was given to swaps in DBRS Morningstar’s analysis.
The total outstanding amount of OBG is currently EUR 11.0 billion. As at 30 September 2019, the CP was composed of EUR 13.2 billion of residential (90.7% of the loan balance), commercial (7.8%), and public sector (1.5%) mortgages plus EUR 518 million of cash, resulting in total OC of 22.6%.
The CP comprised 157,551 mortgage loans originated by BNL.
The weighted-average current loan-to-value ratio of the mortgages was 48.6% with an average seasoning of 5.3 years. The assets securing the loans in the CP were mainly distributed in the Italian regions of Lazio (22.3% of the loan balance) and Lombardy (13.6%).
The CP comprised fixed-for-life loans (75.8% by outstanding balance) and floating-rate loans (24.2%). The floating-rate mortgage loans are indexed to different plain-vanilla indices and reset at different dates.
In comparison, 100% of the liabilities pay a floating rate linked to three-month Euribor. The resulting interest and basis risks are considered as unhedged in DBRS Morningstar’s cash flow analysis.
All CP assets and OBG are denominated in euros. As such, investors are not currently exposed to any foreign exchange risk.
The weighted-average life (WAL) of the CP is 8.8 years, whereas the WAL of the OBG, as of today, was 1.6 years, taking into account the expected maturities. The resulting asset-liability maturity mismatch is mitigated by the OC.
DBRS Morningstar has assessed the LSF related to the Programme as “Modest”, according to its “Rating and Monitoring Covered Bonds” methodology. For more information, please refer to the DBRS Morningstar commentary “Italian Obbligazioni Bancarie Garantite Legal and Structuring Framework” on 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 change under consideration does 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 final terms of Series 15.
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 historical performance data, loan-level and stratification information on the CP provided by the Issuer.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial ratings, 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.
This is the first rating action since the Initial Rating Date.
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 GmbH are subject to EU and US regulations only.
Lead Analyst: Antonio Laudani, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 16 December 2019
DBRS Ratings GmbH, Sucursal en España
Calle del Pinar, 5
DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259
The rating methodologies used in the analysis of this transaction can be found at:
-- 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
-- Interest Rate Stresses for European Structured Finance Transactions
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Rating CLOs Backed by Loans to European SMEs
-- Rating CLOs and CDOs of Large Corporate Credit
-- Modelling Assumptions for Portfolios of Public Sector Exposures
-- Operational Risk Assessment for European Structured Finance Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- 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 email@example.com.