DBRS Ratings GmbH (DBRS Morningstar) assigned a rating of “A” to Series 46 of the Obbligazioni Bancarie Garantite (OBG; the Italian legislative covered bonds) issued under the Banca Monte dei Paschi di Siena S.p.A. (BMPS or the Issuer) EUR 20 billion covered bond programme (BMPS OBG2 or the Programme) guaranteed by MPS Covered Bond 2 S.r.l.
At the same time, DBRS Morningstar discontinued its rating on Series 31, which reached its final maturity on 29 April 2022.
Series 46 is a EUR 1 billion fixed-rate bond paying a coupon of 2%, maturing in April 2026.
As with all other series under the Programme, Series 46 will benefit from a maturity extension to the Long Due for Payment Date of 31 December 2057.
The series of OBG outstanding under the Programme, including the newly issued series, amount to EUR 9.5 billion. All covered bonds issued under the Programme rank pari passu with each other and DBRS Morningstar currently rates them “A”.
The ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of BBB (low), which is BMPS’s Long Term Critical Obligations Rating. BMPS is the Issuer and Reference Entity for the Programme. DBRS Morningstar classifies the Republic of Italy (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 “Very Strong” associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of BBB (low), which is the lowest CPCA in line with the assigned LSF-Implied Likelihood (LSF-L).
-- An LSF-L of A (low).
-- A one-notch uplift for good recovery prospects.
-- A level of overcollateralisation (OC) of 16.0% to which DBRS Morningstar gives credit, which is the contractually committed OC level for BMPS CB2.
-- The sovereign rating of the Republic of Italy, rated BBB (high) with a Stable trend by DBRS Morningstar, as of the date of this press release.
The transaction was analysed with DBRS Morningstar’s European Covered Bond Cash Flow Tool. The main assumptions focused on the timing of defaults and recoveries of the assets and interest rate stresses. In accordance with DBRS Morningstar’s “Rating and Monitoring Covered Bonds” methodology, no forced asset liquidation has been considered for this transaction given the conditional pass-through structure, and DBRS Morningstar has assumed several prepayment scenarios, ranging between a 1% and a 20% prepayment rate.
Everything else being equal, a downgrade of the CBAP by one notch would lead to a downgrade of the LSF-L by one notch, resulting in a downgrade of the covered bond rating by one notch.
In addition, the ratings of the Programme would be downgraded if any of the following occurred: (1) the quality of the CP and the level of OC were no longer sufficient to support a one-notch uplift for good recovery prospects, (2) the LSF Assessment associated with the Programme was downgraded to Average, or (3) the CPCA was downgraded below BBB (low).
Following an Issuer default, the maturities of all OBG are extended to the Long Due for Payment Date and cash flows from the CP are allocated to all series on a pro rata and pari passu basis and distributed to OBG holders via a modified pass-through mechanism. According to such mechanism, monies are accumulated in an account opened by the guarantor with an eligible institution and paid out on the expected maturity date of each OBG. This implies negative carry and has been taken into account in DBRS Morningstar’s cash flow analysis.
The Issuer performs several roles under the Programme documents, including that of the account bank. DBRS Morningstar considers the risk arising from the exposure to BMPS, which has a Critical Obligations Rating of BBB (low), to be consistent with the “A” ratings assigned to the OBG.
The OBG holders benefit from a reserve that is sufficient to cover senior costs and interest payments on the OBG for the subsequent six months rolling.
As of March 2022, the total CP balance was EUR 11.8 billion, including EUR 10.4 billion of mortgages and EUR 1.4 billion of principal receipts. Currently, including Series 46, there are EUR 9.5 billion of covered bonds outstanding under BMPS OBG2, giving a total OC of 23.9%.
As of March 2022, the mortgage CP comprised mortgages secured on residential properties (81.4% by outstanding loan balance) as well as commercial properties (18.6%). The CP comprises 107,869 mortgages with a weighted-average (WA) unindexed current loan-to-value ratio of 46.9% based on unindexed property values. The pool is well seasoned, with a WA seasoning of 7.2 years. Geographically, the pool is also well diversified across Italy, with the three largest concentrations in the regions of Tuscany (23.6%), Lombardy (15.0%), and Lazio (12.7%).
The reference rates of the underlying loans were floating rate (49.6%), fixed rate (45.7%), and optional (4.7%), while 89.5% of the OBG outstanding carry a floating coupon. As there are no hedging agreements in place, OBG holders are exposed to interest rate mismatch, which DBRS Morningstar has taken into account in its cash flow analysis.
All CP assets and liabilities are denominated in euros. As such, investors are not currently exposed to any foreign exchange risk.
As of March 2022, the WA life of the CP was 9.2 years, which is longer than the 2.7-year WA life on the OBG when taking into account the expected maturity calculated as of today. This risk is mitigated by the Long Due for Payment Date, which falls on 31 December 2057.
DBRS Morningstar has assessed the LSF related to the BMPS OBG2 Programme as “Very Strong”, according to its rating methodology. For more information, please refer to the DBRS Morningstar commentaries “DBRS Assigns LSF Assessment to Italian Covered Bonds” and “Italian Obbligazioni Bancarie Garantite: Legal and Structuring Framework Review,” available at www.dbrsmorningstar.com.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Credit actions on BMPS are likely to have an impact on these credit ratings. ESG factors that have a significant impact on BMPS are discussed separately at https://www.dbrsmorningstar.com/issuers/18987
There were no Environmental/Social/Governance factors that had a relevant effect on the credit analysis.
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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the rating is “Rating and Monitoring Covered Bonds” (22 April 2022). This can be found at https://www.dbrsmorningstar.com/about/methodologies.
In DBRS Morningstar’s opinion, the change(s) under consideration do 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 documentation pertaining to the issuance of Series 46. All the other 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/381451/global-methodology-for-rating-sovereign-governments.
The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.
The sources of data and information used for this rating include investor reports and stratification information on the CP provided by the Issuer as of March 2022.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
At the time of initial ratings, DBRS Morningstar was not supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS Morningstar considers the information available to it for the purposes of providing this rating 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 17 February 2022, when DBRS Morningstar assigned an “A” rating to Series 45 of BMPS CB2.
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: 3 September 2013
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The rating methodologies used in the analysis of this transaction can be found at:
-- Rating and Monitoring Covered Bonds (22 April 2022),
-- Rating and Monitoring Covered Bonds Addendum: Market Value Spreads (22 April 2022),
-- Global Methodology for Rating Banks and Banking Organisations (19 July 2021),
-- Legal Criteria for European Structured Finance Transactions (29 July 2021), https://www.dbrsmorningstar.com/research/382171/legal-criteria-for-european-structured-finance-transactions.
-- European RMBS Insight Methodology (28 March 2022) and European RMBS Insight Model v22.214.171.124,
-- European RMBS Insight: Italian Addendum (10 December 2021),
-- Operational Risk Assessment for European Structured Finance Originators (16 September 2021),
-- Operational Risk Assessment for European Structured Finance Servicers (16 September 2021),
-- Rating CLOs and CDOs of Large Corporate Credit (26 January 2022),
-- Rating CLOs Backed by Loans to European SMEs (2 May 2022) and DBRS Morningstar Diversity Model v126.96.36.199, https://www.dbrsmorningstar.com/research/396215/rating-clos-backed-by-loans-to-european-smes.
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2021),
-- Global Methodology for Rating Sovereign Governments (9 July 2021),
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (17 May 2022), https://www.dbrsmorningstar.com/research/396929/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: https://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.