DBRS Assigns A (high) Rating to Intesa Sanpaolo Covered Bond Programme Guaranteed by ISP OBG S.r.l.

DBRS Rating Limited (DBRS) has today assigned a rating of A (high) to Intesa Sanpaolo SpA’s (ISP or the Issuer) covered bonds issued out of the ISP OBG S.r.l. €30,000,000,000 covered bond programme (the Programme). ISP has €19.585 billion Obbligazioni Bancarie Garantite (OBG; the Italian legislative covered bonds) outstanding under the Programme.

The rating action reflects the following analytical considerations:
• The Issuer Rating of A (low) with Negative Trend, confirmed on 23 October 2014.
• DBRS Legal and Structuring Framework (LSF) assessment of Strong associated with the Programme.
• The cover pool credit assessment of BBB in association with an Issuer-Commitment Asset Percentage (AP) of 89.29%.
• The Issuer’s and other subsidiaries banks capabilities with respect to origination of the cover pool (CP) and servicing of the CP.

All else equal, a downgrade of the Issuer rating by one notch would lead to a downgrade of the covered bonds by one notch.

The Programme adherence to the Italian OBG Law, a 12-month principal maturity extension of the OBG to start liquidation of the CP, along with the preponderance of residential mortgages in the CP contribute to the Strong LSF assessment for this Programme.

As of 30 September 2014, the CP included €20.51 billion of first and subsequent ranking mortgage loans and €5.2 billion of cash. The analysis takes into account portfolio data as of 30 June 2014 (the cut-off date) for which the Issuer has provided detailed information.

As of the cut-off date, the mortgage CP comprised mortgages granted to individuals (for 82.3% of the mortgage CP notional) and mortgages to Italian small and medium enterprises (SMEs) and single proprietorships (respectively 8.4% and 9.3%, for a total of 17.7% of the mortgage CP notional). The mortgages have been originated by ISP (48.6% by outstanding balance) and by other wholly owned banking subsidiaries of the Intesa Sanpaolo group, namely Banco di Napoli (30.9%), Cassa di Risparmio del Veneto (10.4%), Banca dell’Adriatico (4.5%), and Cassa di Risparmio in Bologna (5.6%).

The weighted-average current loan-to-value of the mortgages was 43.2% with a seasoning of 6.7 years. The CP was mainly distributed between northern Italy (55% by outstanding balance), southern Italy (31%) and central Italy (14%).

The residential sub-pool comprised 265,786 mortgage loans, amounting to €17.3 billion granted to 262,076 obligors classified as individuals. DBRS received loan-by-loan data information for a sample representative of the residential sub-pool comprising 40,000 mortgage loans for €2.6 billion.

The non-residential sub-pool comprised 33,689 mortgage loans, amounting to €3.74 billion granted to 29,940 obligors. Only 34.8% of the non-residential sub-pool is secured by commercial properties (6.2% of the total mortgage CP), the remaining being residential properties. DBRS has applied residential and non-residential properties market value declines in accordance with its methodology in order to determine recoveries of this portion of the CP. DBRS received loan-by-loan data information for the entire non-residential sub pool.

The CP comprised all-life fixed loans (37.3% by outstanding balance) and floating-rates loans (51.5%, of which 6.9% is of the total mortgage CP with cap) as well as loans with interest rate switching options (9.6%) and balanced mortgages (1.5%) where the balance is split between floating and fixed rate and the borrower can opt to repay totally one of the two legs so that the mortgage becomes either floating or fixed rate. The non-fixed rate mortgage loans are indexed to different plain vanilla basis and reset at different dates. The OBG pay floating rate indexed to three-month Euribor. The interest rate mismatch in the Programme is hedged with ISP, and the other fully owned subsidiaries on the respective portion of CP with cash flows on the non-defaulted CP swapped into three-month Euribor plus a spread (plain vanilla total return swap).

All CP assets are denominated in Euros, as well as all OBG. As such, investors are not currently exposed to any foreign exchange risk.

The DBRS public rating of the Issuer and private ratings on its subsidiaries comply with the DBRS Derivative Criteria for European Structured Finance Transactions, given the ratings of the Covered Bonds.

The Issuer and its wholly owned subsidiaries act as sellers, servicers, swap counterparties as well as receivable account banks for the Programme. The DBRS public rating of the Issuer and private ratings on its subsidiaries comply with the DBRS Legal Criteria for European Structured Finance Transactions, given the ratings of the Covered Bonds.

As of the cut-off date, the weighted-average life of the cover pool was 8.42 years based on 0% pre-payment rate, which is longer than the 4.3-year weighted-average life on the OBG when taking into account the expected maturity. This risk is partially mitigated by the 12-month principal maturity extension and by the maximum AP.

Notes:
All figures are in euro unless otherwise noted.

The principal methodology applicable is Rating European Covered Bonds, which can be found at http://www.dbrs.com/about/methodologies.

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

For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” at http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include historical default performance data and loan-by-loan level information on the cover pool provided by the issuer that allowed DBRS to further assess the portfolio. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

This is the first DBRS rating action on the covered bonds under this Programme.

For further information on DBRS historic default rates published by the European Securities and Markets Administration in a central repository, see
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: Valentina Cicerone
Initial Rating Date: 4 November 2014
Initial Rating Committee Chair: Claire Mezzanotte

DBRS Ratings Limited
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The rating methodologies and criteria used in the analysis of this transaction can be found at http://www.dbrs.com/about/methodologies

• Rating European Covered Bonds
• Rating CLOs Backed by Loans to European Small and Medium-Sized Enterprises (SMEs)
• Global Methodology for Rating Banks & Banking Organisations
• Legal Criteria for European Structured Finance Transactions
• Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
• Master European Structured Finance Surveillance Methodology
• Operational Risk Assessment for European Structured Finance Servicers
• Unified Interest Rate Model Methodology for European Securitisations