DBRS Ratings GmbH (DBRS Morningstar) confirmed its AA 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). This rating action follows the completion of a full review of the Programme.
Concurrently, DBRS Morningstar discontinued its ratings on Series 514 (ISIN IT0004651284) and Series 598 (ISIN IT0004866510), which were repaid in October 2022.
As of the date of this press release, there were 14 series of OBG under the Programme, totalling an outstanding nominal amount of EUR 2.4 billion. The series are guaranteed by Carige Covered Bond S.r.l. (the Guarantor).
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 level of overcollateralization (OC) of 34%, to which DBRS Morningstar gives credit.
-- 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 being 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 remaining 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).
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 its “Legal Criteria for European Structured Finance Transactions” and “Rating and Monitoring Covered Bonds” methodologies.
BPER Banca S.p.A., following an amendment of the swap documentation effective 10 November 2022, is the new CB swap counterparty. The swap documentation is not in line with DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology; therefore, DBRS Morningstar did not give credit to the CB swap agreements in its analysis.
The total outstanding amount of OBG under the programme is currently EUR 2.4 billion. As at 30 September 2022, the balance of the CP totalled EUR 3.5 billion of residential loans (98.6% of the total pool balance) and commercial loans (1.4%) plus EUR 160 million of cash, resulting in a total OC of 44.0%.
The CP comprised 50,839 mortgage loans originated by a network of banks that are part of the Banca Carige Group.
As of 30 September 2022, the weighted-average current loan-to-value ratio of the mortgages was 46.5% with an average seasoning of 7.0 years. The assets securing the loans in the CP were mainly distributed in the Italian regions of Liguria (38.0% of the loan balance), Lombardy (13.0%), and Tuscany (12.2%).
The CP comprised fixed-for-life loans (58.8% by outstanding balance) and floating-rate loans (41.2%). The floating-rate mortgage loans are indexed to different plain-vanilla indices and reset at different dates.
In comparison, 79.4% of the liabilities pay a fixed rate and 20.6% pay a floating rate linked to three-month Euribor.
The resulting interest rate and basis risk is 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 8.2 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, Series 647, and Series 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 (17 May 2022).
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.
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 limited to the novation agreement entered into on 10 November 2022 between the Guarantor, Credit Suisse International as previous swap counterparty and BPER Banca S.p.A. as new swap counterparty.
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/401817/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 from 2008 to 2022; dynamic pool delinquency and prepayments data from 2007 to 2022) as well as loan-level and stratification information on the CP as at 30 September 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 3 August 2022, when DBRS Morningstar upgraded its ratings on CB Series outstanding under the programme to AA from BBB (high), and removed the Under Review with Positive Implications status of the ratings.
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
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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 (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. 126.96.36.199, https://www.dbrsmorningstar.com/research/394309/european-rmbs-insight-methodology.
-- European RMBS Insight: Italian Addendum (29 September 2022),
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2022), https://www.dbrsmorningstar.com/research/402773/operational-risk-assessment-for-european-structured-finance-originators.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2022), https://www.dbrsmorningstar.com/research/402774/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. 188.8.131.52,
-- Interest Rate Stresses for European Structured Finance Transactions (22 September 2022), https://www.dbrsmorningstar.com/research/402943/interest-rate-stresses-for-european-structured-finance-transactions.
-- Global Methodology for Rating Sovereign Governments (29 August 2022), https://www.dbrsmorningstar.com/research/401817/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.