DBRS Ratings GmbH (DBRS Morningstar) assigned A (high) ratings to Series 41 and 42 Obbligazioni Bancarie Garantite (OBG or 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.
Each series is a EUR 2.40 billion floating-rate bond linked to three-month Euribor + 0.72%. Series 41 will mature in February 2035 and Series 42 in August 2035. As with all other series issued under the Programme, both series will benefit from a 12-month maturity extension.
All covered bonds issued under the Programme rank pari passu with each other and are currently rated A (high) by DBRS Morningstar.
The ratings reflect 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 covered bonds 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 10.5%. 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%.
DBRS Morningstar analysed the transaction with its European Covered Bonds Cash Flow tool. The main assumptions focused on the timing of defaults, 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 covered bond ratings. 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 comprises fixed-rate (66.0% of the total outstanding balance) and floating-rate loans (34.0%). 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. The transaction is now exposed to interest rate risk, as ISP and the other originators unwound the swap contracts in place on 25 February 2020.
For further information on the Programme, please refer to the rating report at www.dbrsmorningstar.com.
The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many structured finance transactions, some meaningfully. The ratings are based on additional analysis and, where appropriate, additional adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. On 16 April 2020, the DBRS Sovereign group published its outlook on the impact to key economic indicators for the 2020-22 time frame. For details see the following commentaries: https://www.dbrsmorningstar.com/research/359679/global-macroeconomic-scenarios-implications-for-credit-ratings and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is: “Rating and Monitoring Covered Bonds” (27 April 2020).
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 and the asset analysis following the amendment of the Master Transfer Agreement and incorporation of further adjustments linked to the coronavirus pandemic.
A review of the transaction legal documents was limited to the documentation pertaining to the issuance of Series 41 and Series 42 and the amended Master Transfer Agreement. 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 at: https://www.dbrsmorningstar.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.dbrsmorningstar.com/research/350410/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for these ratings include investor reports, loan-by-loan information 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 the 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 27 March 2020, when DBRS Morningstar assigned an A (high) rating to Series 40.
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.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: 7 November 2014
DBRS Ratings GmbH, Sucursal en España
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Tel. +34 (91) 903 6500
DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259
The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrsmorningstar.com/about/methodologies.
-- Rating and Monitoring Covered Bonds (27 April 2020),
-- Rating and Monitoring Covered Bonds Addendum: Market Value Spreads (27 April 2020),
-- Global Methodology for Rating Banks and Banking Organisations (11 June 2019),
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
-- Derivative Criteria for European Structured Finance Transactions (26 September 2019),
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (10 December 2019) and European RMBS Credit Model v 22.214.171.124, https://www.dbrsmorningstar.com/research/354403/master-european-residential-mortgage-backed-securities-rating-methodology-and-jurisdictional-addenda.
-- Operational Risk Assessment for European Structured Finance Originators (28 February 2020), https://www.dbrsmorningstar.com/research/357430/operational-risk-assessment-for-european-structured-finance-originators.
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020), https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers.
-- Rating CLOs and CDOs of Large Corporate Credit (28 February 2020), https://www.dbrsmorningstar.com/research/357452/rating-clos-and-cdos-of-large-corporate-credit.
-- Rating CLOs Backed by Loans to European SMEs (8 July 2019) and DBRS Diversity Model v2.4, https://www.dbrsmorningstar.com/research/347780/rating-clos-backed-by-loans-to-european-smes.
-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2019), https://www.dbrsmorningstar.com/research/351557/interest-rate-stresses-for-european-structured-finance-transactions.
-- Global Methodology for Rating Sovereign Governments (17 September 2019), https://www.dbrsmorningstar.com/research/350410/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.dbrsmorningstar.com/research/278375.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at email@example.com.