Press Release

DBRS Morningstar Confirms “A” Credit Ratings on Intesa Sanpaolo S.p.A. Covered Bonds (OBG - Mortgages - Programme 2) Guaranteed by ISP OBG S.r.l.

Covered Bonds

November 03, 2023

DBRS Ratings GmbH (DBRS Morningstar) confirmed its “A” credit ratings on the Obbligazioni Bancarie Garantite (OBG or the Italian legislative covered bonds) issued under the Intesa Sanpaolo SpA (ISP or the Issuer) EUR 55 billion covered bond programme (ISP OBG or the Programme), following the completion of a full review.

Concurrently, DBRS Morningstar discontinued its credit ratings on Series 19 (ISIN IT0005143067) and Series 20 (ISIN IT0005200438), which were repaid in February 2023 and August 2023, respectively.

As of the date of this press release, the series of OBG outstanding under the Programme, guaranteed by ISP OBG S.r.l., amounted to EUR 42.6 billion.

The credit ratings reflect the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of “A”, which is ISP’s Long Term Critical Obligations Rating. ISP is the Issuer and reference entity (RE)for the Programme. DBRS Morningstar classifies the Republic of Italy as a jurisdiction in which covered bonds (CBs) are a particularly important funding instrument and deems the cover pool (CP) strategic for the Issuer’s core activity.
-- A Legal and Structuring Framework (LSF) Assessment of “Adequate” assigned to the Programme.
-- An LSF-Implied Likelihood (LSF-L) of “A”.
-- No uplift for recovery prospects.
-- A level of overcollateralisation (OC) to which DBRS Morningstar gives credit of 14.7%. This is the minimum OC observed over the past 12 months adjusted by a scaling factor of 0.9. The Issuer commits to an asset percentage of 94.5%, which translates to an OC commitment of 5.8%.
-- DBRS Morningstar’s sovereign credit rating of BBB (high) with a Stable trend on the Republic of Italy as of the date of this press release.

DBRS Morningstar analysed the transaction with its 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 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 CB credit ratings.

There are currently 27 series outstanding for a total amount of EUR 42.6 billion. As of September 2023, the balance of the assets in the CP was EUR 44.4 billion of residential and commercial mortgages and EUR 5.1 billion of cash collections (considering the principal component), resulting in an OC of 16.3%.

As of September 2023, the CP comprised 556,400 loans with a split of 90.8% residential versus 9.2% nonresidential, based on the type of property. The CP has a weighted-average (WA) indexed current loan-to-value ratio of 47.4% and a WA seasoning of 7.2 years. The mortgages were originated by ISP and network banks that are part of the ISP group. The CP is geographically diversified, with the highest concentrations in the Italian regions of Lombardy (22.9% by outstanding loan balance), Veneto (12.2%), and Lazio (11.0%).

The CP comprised fixed-rate (73.3% of the total outstanding balance) and floating-rate loans (26.7% of the total outstanding balance). The floating-rate mortgage loans are indexed to different plain vanilla bases and reset at different dates while the 100% floating-rate liabilities are linked to three-month Euribor plus a spread. The transaction is exposed to interest rate risk because, since February 2020, the transaction has not had any swap contracts in place. DBRS Morningstar considered this in its cash flow analysis.

All CP assets and OBG are denominated in euros. As such, investors are not currently exposed to any foreign exchange risk.

As of June 2023, the WA life of the CP was 9.2 years while the WA life of the OBG calculated as of the date of this press release is 6.9 years, based on the expected maturity. This generates an asset/liability mismatch, which is partially mitigated by the 12-month maturity extension in case of an Issuer event of default and by the OC in place.

DBRS Morningstar assessed the LSF related to the ISP OBG as “Adequate” according to its credit rating methodology. For more information, please refer to the “Italian Obbligazioni Bancarie Garantite Legal and Structuring Framework” commentary available at www.dbrsmorningstar.com.

DBRS Morningstar’s credit ratings on the outstanding CB series address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related interest payment amounts and the related principal amount.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Credit rating actions on the Issuer are likely to have an impact on these credit ratings.

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/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is: Global Methodology for Rating and Monitoring Covered Bonds (8 May 2023),
https://www.dbrsmorningstar.com/research/413651/global-methodology-for-rating-and-monitoring-covered-bonds.

Other methodologies referenced in this transaction are listed at the end of this press release.

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 focused on the changes in the Programme’s documentation aimed at aligning it with the new CB legal framework (May 2023).

For a more detailed discussion of the sovereign risk impact on Structured Finance credit 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/421590.

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.

The sources of data and information used for these credit ratings include historical performance data (static pool default and prepayments data from 2013 to 2023) as well as loan-level and stratification information on the CP as of 30 June 2023 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 credit ratings, DBRS Morningstar was not supplied with third-party assessments. However, this did not impact the credit rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the credit rating process.

The last credit rating action on this transaction took place on 4 November 2022, when DBRS Morningstar downgraded its credit ratings on the CB series outstanding under the Programme to “A” from A (high).

Information regarding DBRS Morningstar credit 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://registers.esma.europa.eu/cerep-publication. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Antonio Laudani, Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 7 November 2014

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The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

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 info@dbrsmorningstar.com.

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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