DBRS Ratings GmbH (DBRS Morningstar) upgraded its ratings on the Obbligazioni Bancarie Garantite (OBG; the Italian legislative covered bonds) issued under the Unione di Banche Italiane S.p.A. Covered Bonds Programme 2 (UBI OBG2 or the Programme) to A (high) from “A”. This rating action follows the upgrade of the Issuer’s rating on 7 August 2020 (https://www.dbrsmorningstar.com/research/365390/dbrs-morningstar-confirms-intesa-and-upgrades-ubis-issuer-rating-to-bbb-high-following-the-conclusion-of-intesas-offer).
As of today, there were six series of OBG under the Programme, totalling an outstanding nominal amount of EUR 1.8 billion, guaranteed by UBI Finance CB2 S.r.l..
The ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of “A”, which is the Long-Term Critical Obligations Rating of Unione di Banche Italiane S.p.A. (UBI). UBI is the Issuer and Reference Entity for the Programme. DBRS Morningstar classifies the Republic of Italy 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 “Average” associated with the Programme.
-- An LSF-Implied Likelihood (LSF-L) of “A”.
-- A one-notch uplift for good recovery prospects.
-- No committed overcollateralisation (OC). The minimum observed OC level during the past 12 months is 20.7%. However, DBRS Morningstar gives credit to a limited level of OC equal to 2%, which is considered to be sustainable based on information from the Issuer and expected market developments.
The transaction was analysed with 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 covered bonds rating.
In addition, all else unchanged, the ratings of the covered bonds 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.
UBI acts as the Account Bank and holds the Reserve Account. Based on the ratings of UBI and on the Account Bank’s replacement provisions included in the documentation, DBRS Morningstar considers the risk of such counterparty to be consistent with the ratings assigned, in accordance with the “Legal Criteria for European Structured Finance Transactions” methodology.
The total outstanding amount of OBG is EUR 1.8 billion while the aggregate balance of the CP, as at 30 June 2020, was EUR 3.0 billion of residential (47%) and commercial (53%) mortgages plus EUR 71 million of cash collections, resulting in a total OC of 71.0%.
As at June 2020, the CP comprised 28,757 mortgages originated by network banks of the UBI group. The weighted-average current loan-to-value ratio of the mortgages was 37.6% with a seasoning of 8.2 years. The CP was mainly distributed in Lombardy (42.3%), Marche (9.6%), and Piedmont (9.1%).
The CP comprised fixed-for-life loans (16.4% by outstanding balance) and floating-rate loans (83.6%), indexed to different plain-vanilla bases and resetting at different dates. In comparison, 100% of the liabilities pay a floating rate indexed to three-month Euribor. The resulting interest and basis risks are unhedged; this has been considered 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 6.1 years, whereas the WAL of the OBG, as of today, was 2.9 years. The resulting asset-liability maturity mismatch is mitigated by the 12-month maturity extension in case of an Issuer event of default and by the uncommitted OC.
DBRS Morningstar has assessed the LSF related to the UBI OBG2 as “Average”, according to its rating methodology. For more information, please refer to the DBRS Morningstar commentary “Italian Obbligazioni Bancarie Garantite Legal and Structuring Framework” found at 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 CP 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 changes 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 not conducted as the legal 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 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 30 June 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 5 December 2019, when DBRS Morningstar assigned an “A” rating to the Series 8 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: Ketan Thaker, Managing Director
Initial Rating Date: 27 October 2015
DBRS Ratings GmbH, Sucursal en España
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DBRS Ratings GmbH
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Geschäftsführer: Detlef Scholz
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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),
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (14 July 2020) and DBRS Morningstar European RMBS Credit Model v 18.104.22.168,
-- 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.
-- 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
-- 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 Morningstar Diversity Model v. 2.4, https://www.dbrsmorningstar.com/research/347780/rating-clos-backed-by-loans-to-european-smes.
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.