DBRS Assigns “A” Rating to Banca Monte dei Paschi di Siena Programme 2 Covered Bonds Series 15
Covered BondsDBRS Rating Limited (DBRS) has assigned a rating of “A” to Series 15 issued by Banca Monte dei Paschi di Siena SpA (BMPS) under Banca Monte dei Paschi di Siena Programme 2 (BMPS P2 OBG). This rating is Under Review with Negative Implications as for all other Series issued under the Programme given the DBRS placement of the BMPS Senior Long-Term Debt and Deposit Rating of BBB Under Review with Negative Implications on October 28, 2014.
Series 15 is a EUR 300 million floating-rate security maturing in January 2018. Following the issuance of the new Series BMPS has EUR 8.1 billion Obbligazioni Bancarie Garantite (OBG; the Italian legislative covered bonds) outstanding under Programme 2 (P2).
The rating action reflects the following analytical considerations:
-- The senior unsecured debt rating of BMPS of BBB, Under Review with Negative Implications.
-- The Legal and Structuring Framework (LSF) assessment of Very Strong associated with Programme 2.
-- The cover pool credit assessment of BBB, and maximum committed AP of 75.5%.
Following an Issuer default, the maturities of all OBG are extended to the long due for payment date, being 31 December 2057, and cash flows from the cover pool 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, moneys 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 that has been taken into account in the cash flow modeling. As a deviation from its “Rating European Covered Bonds” methodology, DBRS has assumed several prepayment scenarios ranging between 0% and 20% PPR.
The OBG holders benefit from a reserve that builds over time with the cash flows from the cover pool up to an amount that is sufficient to cover senior costs and interest payments on the OBG for the subsequent six months rolling.
As of 30 September 2014, the mortgage cover pool includes mortgage loans with a notional balance of EUR 10.7 billion and EUR 1.02 billion of principal available funds.
As of 30 September 2014, the mortgage cover pool was comprised by mortgages secured on a residential property (60%) as well as commercial (40%). Forty percent of the cover pool notional amount was granted to individuals classified with SAE 600 as per Bank of Italy definition and 60% to other debtors, including small- and medium-sized enterprises. Out of the total cover pool, 14.5% was granted to employees of the Issuer and is subject to additional stresses (see rating report published on www.dbrs.com).
The reference rate of the underlying loans was split into floating (77.7%), fixed for life (14.7%) and modular (7.6%), which can switch from fixed to floating and vice-versa at pre-determined dates). All the OBG issued carry a floating coupon. As there are no hedge agreements in place, OBG holders are exposed to an interest rate mismatch, which has been taken into account in DBRS cash flow modeling.
All cover assets are euro denominated as well as all OBG issued. Hence, OBG holders are currently not exposed to any foreign exchange risk.
Notes:
All figures are in euros unless otherwise noted.
The principal methodology applicable is: “Rating European Covered Bonds.” This can be found on www.dbrs.com 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” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.
The sources of information used for this rating include data related to the cover pool provided by BMPS and an updated set of historical default performance data. 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.
The last rating action on this programme took place on 31 October 2014, when DBRS placed the rating of all outstanding Series Under Review Negative Implications following similar action on the Issuer Rating.
This rating is Under Review with Negative Implications. The review on the covered bonds will be resolved only once the conditions that lead to the assignment of review on the Issuer Rating are resolved.
Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com
Everything else equal, should BMPS rating be downgraded by one notch to BBB (low), then the covered bonds ratings would be downgraded by one notch to A (low).
For further information on DBRS historic default rates published by the European Securities and Markets Administration (ESMA) 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: 3 September 2013
Initial Rating Committee Chair: Claire Mezzanotte
Last Rating Date: 31 October 2014
Lead Analyst: Valentina Cicerone
Rating Committee Chair: Quincy Tang
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
• Global Methodology for Rating Banks & Banking Organisations
• Master European Structured Finance Surveillance Methodology
• Rating CLOs Backed by Loans to European Small and Medium-Sized Enterprises (SMEs)
• Legal Criteria for European Structured Finance Transactions
• Operational Risk Assessment for European Structured Finance Servicers
• Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
• Unified Interest Rate Model Methodology for European Securitisations
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