DBRS Confirms Intesa Sanpaolo Covered Bond Programme Guaranteed by ISP OBG S.r.l. at A (high)

DBRS Rating Limited (DBRS) has today confirmed the rating of A (high) on Intesa Sanpaolo (ISP or the Issuer) covered bonds issued by ISP OBG S.r.l. EUR 30,000,000,000 covered bond programme (the Programme) following the implementation of DBRS’s “Rating European Covered Bonds Methodology” published on 17 December 2014 (the Methodology).

ISP has EUR 19.585 billion Obbligazioni Bancarie Garantite (OBG or the Italian legislative covered bonds) outstanding under the Programme.

The rating action reflects a material update to the methodology DBRS uses to rate and monitor European covered bonds. The Methodology supersedes the previous methodology “Rating European Covered Bonds,” published 30 January 2014.

The confirmation of the A (high) rating also follows the completion of the annual review on the Programme and is based on the following analytical considerations:
• A Covered Bonds Attachment Point of A (low), being the Issuer Rating. The Issuer is also the Reference Entity for the Programme.
• A Legal and Structuring Framework (LSF) Assessment of “Strong” assigned to the Programme.
• A Cover Pool Credit Assessment (CPCA) of BB, being the lowest CPCA in line with the final covered bonds rating.
• An LSF-Implied Likelihood (LSF-L) of A (low).
• Two notches uplift for high recovery prospects.
• An Issuer-Commitment Asset Percentage of 89.29% to which the Issuer commits contractually.

The transaction was modelled with the DBRS European Covered Bond Cash Flow Model. 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 cover pool.

Everything else equal, a downgrade of the Reference Entity rating by two notches would lead to a downgrade of the LSF-L by one notch, resulting in a downgrade of the covered bonds rating by one notch.

In addition, the ratings of the Programme would be downgraded if any of the following occurs: (i) the sovereign rating of the Republic of Italy were downgraded below A (low); (ii) the quality and consistency of the cover pool were no longer sufficient to support two notches uplift for high recovery prospects; or (iii) the LSF Assessment associated with the programme were downgraded; (iv) volatility in the financial markets caused the currently estimated market value spreads to increase.

As of 30 September 2014, the cover pool included EUR 20.51 billion of first and subsequent ranking residential and commercial mortgage loans and EUR 5.20 billion of cash.

DBRS has assessed the LSF related to ISP OBG Programme as Strong according to its rating methodology. For more information, please refer to DBRS commentaries “DRBS Assigns LSF Assessment to Italian Covered Bonds” and “Italian Covered Bonds: Legal and Structuring Framework Review,” available at www.dbrs.com.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is Rating European Covered Bonds (December 2014), which can be found at www.dbrs.com. 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.

The last rating action on this Programme took place on 7 November 2014 when DBRS assigned ratings to the 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: 7 November 2014
Initial Rating Committee Chair: Claire Mezzanotte

Last Rating Date: 7 November 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.

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