DBRS Ratings GmbH (DBRS Morningstar) assigned a AA (low) rating to the Series 16 (ISIN IT0005416992) 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 10 (ISIN IT0005276727), which was repaid on 28 July 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 10.4 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 the 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 also acts as the 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 10.4 billion. As at 31 March 2020, the CP was composed of EUR 11.2 billion of residential (90.5% of the loan balance), commercial (7.7%), and public sector (1.7%) mortgages plus EUR 935 million of cash, resulting in a total OC of 13.9%.
The weighted-average current loan-to-value ratio of the mortgages was 48.7% with an average seasoning of 5.9 years. The assets securing the loans in the CP were mainly distributed in the Italian regions of Lazio (22.2% of the loan balance) and Lombardy (13.6%).
The CP comprised fixed-for-life loans (74.2% by outstanding balance) and floating-rate loans (25.8%). 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 8.6 years, whereas the WAL of the OBG, as of today, was 1.4 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 https://www.dbrsmorningstar.com/.
For further information on the Programme, please refer to the rating report available on 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 CPs, some meaningfully. The rating is based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. In the cover pool analysis of this programme, DBRS Morningstar assumed a moderate decline in residential property prices.
On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 22 July 2020. For details see the following commentaries: https://www.dbrsmorningstar.com/research/364318/global-macroeconomic-scenarios-july-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.
On 24 April 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated covered bonds in Europe. For more details, please see: https://www.dbrsmorningstar.com/research/359987/covid-19-the-impact-on-european-covered-bonds and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.
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.
For further information on the Programme, please refer to the rating report available on www.dbrsmorningstar.com.
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 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 16.
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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for these ratings include stratification information on the CP provided by the Issuer as of 31 March 2020.
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.
The last rating action on this transaction took place on 28 January 2020, when DBRS Morningstar assigned a AA (low) rating to the Series 15 issued under the Programme.
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: https://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
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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: https://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 (8 June 2020),
-- 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 (14 July 2020) and European RMBS Credit Model v 188.8.131.52, https://www.dbrsmorningstar.com/research/363998/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 (21 July 2020), https://www.dbrsmorningstar.com/research/364310/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 (27 July 2020), https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.
-- Modelling Assumptions for Portfolios of Public Sector Exposures (29 August 2019), https://www.dbrsmorningstar.com/research/349878/modelling-assumptions-for-portfolios-of-public-sector-exposures.
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.
This press release was amended on 18 August 2020 to add a methodology publication date.