DBRS Ratings GmbH (DBRS Morningstar) confirmed its AA 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 1 (UBI OBG1 or the Programme). This rating action follows the completion of a full review of the Programme.
Concurrently, DBRS Morningstar discontinued its ratings on Series 6 (ISIN IT0004682305), Series 12 (ISIN IT0004966195), Series 19 (ISIN IT0005155673), and Series 32 (ISIN IT0005393936) which were repaid between October 2020 and January 2021.
Following the merger of Unione di Banche Italiane S.p.A. (UBI) into Intesa Sanpaolo S.p.A. (Intesa), which occurred in April 2021, Intesa has become the Reference Entity for this Programme.
As of today, the series of OBG outstanding under the Programme, guaranteed by UBI Finance S.r.l., amounted to EUR 9.3 billion.
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 Intesa. Intesa 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 “Adequate” associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of BBB, which is the lowest in line with the assigned LSF-Implied Likelihood (LSF-L).
-- An LSF-L of AA (low).
-- A one-notch uplift for good recovery prospects.
-- A level of overcollateralisation (OC) of 13.9% 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 with the DBRS Morningstar European Covered Bond Cash Flow tool. The main assumptions focused on the timing of defaults and recoveries of the assets, interest rate stresses and market value spreads to calculate liquidation values on the CP.
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 ratings.
In addition, all else unchanged, the OBG ratings would be downgraded if any of the following occurred: (1) the CPCA were downgraded below BBB; (2) the LSF Assessment associated with the Programme were downgraded; (3) the quality of the CP and level of OC were no longer sufficient to support a one-notch uplift for good recovery prospects; (4) the relative amortisation profile of the OBG and CP moved adversely; or (5) volatility in the financial markets caused the currently estimated market value spreads to increase.
Intesa acts as the account bank, which also holds the reserve account. Based on the ratings of Intesa 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 its “Legal Criteria for European Structured Finance Transactions” methodology.
The total outstanding amount of OBG is EUR 9.3 billion, while the aggregate balance of the CP, considering data as at 31 July 2021, was EUR 9.5 billion of residential mortgages plus EUR 1.5 billion of cash collections, resulting in a total OC of 16.6%.
As at July 2021, the CP comprised 122,826 first-ranking residential mortgages, originated by network banks of the UBI group.
The weighted-average indexed current loan-to-value ratio of the mortgages was 51.0% with a seasoning of 8.3 years. The CP was mainly distributed in the Italian regions of Lombardy (38.1% by outstanding balance), and Lazio (16.8%).
The CP comprised fixed-rate loans (45.9%) and floating-rate loans (54.1%), the former of which includes mixed loans as well as optional loans currently featuring a fixed-rate coupon. The floating-rate mortgage loans are indexed to different plain-vanilla bases and reset at different dates.
In comparison, 80.4% of the liabilities pay a fixed rate and 19.6% pay a floating rate linked to three- and six-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 9.2 years, whereas currently the WAL of the OBG is 4.1 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 OC.
DBRS Morningstar has assessed the LSF related to the UBI OBG1 as “Adequate”, 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/.
The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to increases in unemployment rates and income reductions for borrowers. DBRS Morningstar anticipates that delinquencies may continue to increase in the coming months for many cover pools. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar incorporated an increase in default probability of self-employed borrowers in its analysis of this programme. In addition, DBRS Morningstar assumed a moderate decline in residential property prices.
The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 8 September 2021. DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/384150/baseline-macroeconomic-scenarios-for-rated-sovereigns and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.
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 can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.
On 14 September 2022, DBRS Morningstar updated the notes section of this press release to reflect the correct initial rating date of 24 August 2015.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is “Rating and Monitoring Covered Bonds” (10 June 2021).
Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: http://www.dbrsmorningstar.com/about/methodologies.
DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.
A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.
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/381451/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for these ratings include historical performance data (static pool default and prepayments data from 2011 to 2021), loan-level and stratification information on the CP as at 30 June 2021 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 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 18 September 2020, when DBRS Morningstar confirmed its AA ratings on the CB series outstanding 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.
DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.
This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.
Lead Analyst: Antonio Laudani, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 24 August 2015
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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 (10 June 2021), https://www.dbrsmorningstar.com/research/379983/rating-and-monitoring-covered-bonds.
-- Rating and Monitoring Covered Bonds Addendum: Market Value Spreads (10 June 2021), https://www.dbrsmorningstar.com/research/379985/rating-and-monitoring-covered-bonds-addendum-market-value-spreads.
-- Global Methodology for Rating Banks and Banking Organisations (19 July 2021), hhttps://www.dbrsmorningstar.com/research/381742/global-methodology-for-rating-banks-and-banking-organisations.
-- Legal Criteria for European Structured Finance Transactions (29 July 2021),
-- European RMBS Insight Methodology (3 June 2021) and European RMBS Insight Model v. 126.96.36.199, https://www.dbrsmorningstar.com/research/379557/european-rmbs-insight-methodology.
-- European RMBS Insight: Italian Addendum (21 December 2020), https://www.dbrsmorningstar.com/research/371597/european-rmbs-insight-italian-addendum.
-- Operational Risk Assessment for European Structured Finance Originators (16 September 2021), https://www.dbrsmorningstar.com/research/384512/operational-risk-assessment-for-european-structured-finance-originators.
-- Operational Risk Assessment for European Structured Finance Servicers (16 September 2021), https://www.dbrsmorningstar.com/research/384513/operational-risk-assessment-for-european-structured-finance-servicers.
-- Interest Rate Stresses for European Structured Finance Transactions (28 September 2020), https://www.dbrsmorningstar.com/research/367292/interest-rate-stresses-for-european-structured-finance-transactions.
-- Global Methodology for Rating Sovereign Governments (9 July 2021), https://www.dbrsmorningstar.com/research/381451/global-methodology-for-rating-sovereign-governments.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021), https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.
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.