DBRS Ratings GmbH (DBRS Morningstar) upgraded its ratings on the obbligazioni bancarie garantite (OBG; the Italian legislative covered bonds) issued under the EUR 5,000,000,000 Banca Carige S.p.A. Covered Bonds Programme (the Programme) to AA from BBB (high) and removed the ratings from Under Review with Positive Implications, where they were placed on 28 February 2022.
As of the date of this press release, there were 16 series of OBG under the Programme, totalling an outstanding nominal amount of EUR 2.6 billion. The series are guaranteed by Carige Covered Bond S.r.l.
The ratings reflect the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of A (low), which is the Long Term Critical Obligations Rating of Banca Carige S.p.A. (Carige). Carige is the Issuer and Reference Entity for the Programme. DBRS Morningstar classifies Italy as a jurisdiction in which CBs 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 CPCA in line with the final LSF-Implied Likelihood (LSF-L).
-- An LSF-L of A (high).
-- A two-notch uplift on the LSF-L for high recovery prospects.
-- A committed minimum overcollateralisation (OC) of 22%, as expressed in the investor report, and the 29.1% OC to which DBRS Morningstar gives credit, equal to the minimum level observed in the past 12 months, adjusted by a scaling factor of 0.85.
-- The sovereign rating on the Republic of Italy, rated BBB (high) with a Stable trend by DBRS Morningstar, as of the date of this press release.
DBRS Morningstar analysed the transaction using its 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 equal, a one-notch downgrade of the CBAP would lead to a two-notch downgrade of the LSF-L, resulting in a two-notch downgrade of the CB ratings.
In addition, all else equal, the ratings on the CBs would be downgraded if any of the following occurred: (1) the CPCA was downgraded below BBB; (2) the quality of the CP and the level of OC were no longer sufficient to support a two-notch uplift for high recovery prospects; (3) the relative amortisation profiles of the OBG and CP were to move adversely; (4) the LSF assessment associated with the Programme was downgraded; (5) volatility in the financial markets caused the currently estimated market value spreads to increase, or (6) the sovereign rating on the Republic of Italy was downgraded below BBB (high).
This rating action follows DBRS Morningstar’s 28 July 2022 upgrade of the Issuer’s ratings and, in particular, the upgrade of its Long Term Critical Obligations Rating to A (low) from B (high).
BNP Paribas Securities Services SCA, Milan branch acts as the account bank for this transaction. Based on DBRS Morningstar’s private rating on this bank and the replacement provisions included in the transaction 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” and “Rating and Monitoring Covered Bonds” methodologies.
Credit Suisse International is the CB swap counterparty. Following the CBs’ rating upgrade, the swap documentation is not in line with DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” anymore; therefore, DBRS Morningstar did not give credit to the CB swap agreements in its analysis.
The total outstanding amount of OBG is currently EUR 2.6 billion. As at 30 June 2022, the balance of the CP totalled EUR 3.6 billion of residential loans (98.5% of the total pool balance) and commercial loans (1.5%) plus EUR 51 million of cash, resulting in a total OC of 34.2%.
The CP comprised 51,726 mortgage loans originated by network banks that are part of the Banca Carige Group.
As of 30 June 2022, the weighted-average current loan-to-value ratio of the mortgages was 47.2% with an average seasoning of 6.8 years. The assets securing the loans in the CP were mainly distributed in the Italian regions of Liguria (38.1% of the loan balance), Lombardy (13.0%), and Tuscany (12.2%).
The CP comprised fixed-for-life loans (58.4% by outstanding balance) and floating-rate loans (41.6%). The floating-rate mortgage loans are indexed to different plain-vanilla indices and reset at different dates.
In comparison, 80.7% of the liabilities pay a fixed rate and 19.3% pay a floating rate linked to three-month Euribor. The resulting interest rate and basis risk are partly hedged through the CB swaps, 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 7.9 years whereas the WAL of the OBG, as of the date of this press release, was 4.5 years, taking into account the expected maturities. The resulting asset-liability maturity mismatch is mitigated by the 15-month maturity extension in case of an Issuer event of default and by the OC. Only Series 646, 647, and 653 feature a 12-month maturity extension.
DBRS Morningstar assessed the LSF related to the Programme 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”, which is available on https://www.dbrsmorningstar.com.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or 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 ratings is “Rating and Monitoring Covered Bonds” (22 April 2022).
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.
In DBRS Morningstar’s opinion, the changes under consideration do not require the application of the entire principal methodology. Therefore, DBRS Morningstar focused on a 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.
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 these ratings include historical performance data (static pool default and recovery data; dynamic pool delinquency and prepayments data from 2007 to 2021) as well as loan-level information on the CP as at 30 September 2021 and stratification information on the CP as at 30 June 2022 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 28 February 2022, when DBRS Morningstar placed its BBB (high) ratings on the series outstanding under the Programme Under Review with Positive Implications.
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.
These ratings are 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: 23 November 2015
DBRS Ratings GmbH, Sucursal en España
Paseo de la Castellana, 81
Plantas 26 & 27
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: https://www.dbrsmorningstar.com/about/methodologies.
-- 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 (23 June 2022),
-- Legal Criteria for European Structured Finance Transactions (22 July 2022),
-- Derivative Criteria for European Structured Finance Transactions (20 September 2021),
-- European RMBS Insight Methodology (28 March 2022) and European RMBS Insight Model v. 18.104.22.168,
-- European RMBS Insight: Italian Addendum (10 December 2021),
-- 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.
-- Rating CLOs and CDOs of Large Corporate Credit (26 January 2022),
-- Rating CLOs Backed by Loans to European SMEs (10 June 2022) and DBRS Morningstar Diversity Model v. 22.214.171.124,
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2021),
-- 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 (17 May 2022),
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.