Press Release

DBRS Downgrades Ratings on Banca Monte dei Paschi di Siena Programme 2 to A (low). Keeps Ratings Under Review Negative

Covered Bonds
March 26, 2015

DBRS Rating Limited (DBRS) has today downgraded to A (low) from “A” the rating on the covered bonds issued by Banca Monte dei Paschi di Siena SpA (BMPS or the Issuer and Reference Entity) under Banca Monte dei Paschi di Siena Programme 2 (BMPS P2 OBG or the Programme). There are EUR 8.1 billion Obbligazioni Bancarie Garantite (OBG; the Italian legislative covered bonds) outstanding under BMPS Programme 2.

The rating action follows DBRS’s downgrade of the Senior Long-Term Debt & Deposit rating of the Issuer and Reference Entity of the Programme to BBB (low) from BBB on 18 February 2015. The ratings of the BMPS P2 OBG were placed Under Review with Negative Implications on 23 February 2015, pending clarifications from the Issuer concerning the implementation of remedial actions contemplated in the Programme documents.

The Issuer has clarified that it intends to continue performing the role of Italian Account Bank in the transaction. The Italian Account Bank is rated BBB (low) and is an eligible institution under DBRS’s “Legal Criteria for European Structured Finance Transactions” in association with the A (low) rating on the OBGs.

The ratings remain Under Review with Negative Implications, as the Issuer’s ratings are Under Review with Negative Implications.

The A (low) rating on the covered bonds is based on the following analytical considerations:

  • A Covered Bonds Attachment Point of BBB (low), being the Senior Long-Term Debt & Deposit Rating of BMPS. BMPS is the Issuer and Reference Entity for the Programme.
  • A Legal and Structuring Framework (LSF) Assessment of Very Strong assigned to BMPS P2 OBG Programme.
  • A Cover Pool Credit Assessment (CPCA) of BBB.
  • An LSF-Implied Likelihood (LSF-L) of A (low).
  • An Issuer-Commitment Asset Percentage of 75.5%.

Everything else equal, a downgrade of the Reference Entity rating by one notch would lead to a downgrade of the LSF-L by one notch; however, given the possibility of granting a one notch uplift for good recovery prospects, the OBG rating could be maintained subject to the application of counterparty criteria.

As of 30 December 2014, the mortgage cover pool includes mortgage loans with a notional balance of EUR 10.3 billion and EUR 946.7 million of principal available funds.

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 OBG series on a pro rata and pari passu basis and distributed to OBG holders via a modified pass-through mechanism.

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 rolling six months. DBRS views the cash reserve and other structural features in place, such as the appointment of a Back-up Servicer Facilitator if the rating of the servicer is downgraded below BBB (low) and the appointment of a Back-up Servicer if the rating of the servicer is downgraded below BB (high) along with daily sweep of collections on the account held with the Italian Account Bank (which is subject to replacement triggers), as satisfactory mitigants to the commingling risk in correspondence with a covered bond rating of A (low).

Based on information provided by BMPS, DBRS estimates the set-off risk which the transaction is exposed to being circa 2.24% of the cover pool notional. DBRS’s estimate gives credit to 100% of the deposit guarantee scheme administered by the Fondo Interbancario di Tutela dei Depositi and funded by the Italian commercial banks and increases the Mark-to-Market of derivatives by 25%, as there is no certainty that the set-off exposure coming from derivative contracts crystallises at the date of the publication of the transfer of the portfolio in the Official Gazette. The Issuer will deduct the potential set-off amount from the calculation of the Asset Coverage Test starting on the next Quarterly Test Calculation Date (which falls at the end of April), thus resulting in additional assets to be added to the cover pool.

DBRS has assessed the legal and structuring framework (LSF) related to BMPS P2 OBG as Very Strong according to its rating methodology. For more information, please refer to DBRS commentaries “DBRS Assigns LSF Assessment to Italian Covered Bonds” and “Italian Covered Bonds: Legal and Structuring Framework Review,” available at www.dbrs.com.

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 (December 2014). 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’s “The Effect of Sovereign Risk on Securitisations in the Euro Area” commentary at: 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 23 February 2015, when DBRS maintained the ratings Under Review with Negative Implications following the downgrade of the Issuer rating which was also kept Under Review with Negative Implications.

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’s rating are resolved.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com

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: 3 September 2013
Initial Rating Committee Chair: Claire Mezzanotte

Last Rating Date: 23 February 2015

Lead Analyst: Valentina Cicerone
Rating Committee Chair: Mary Jane Potthoff

DBRS Ratings Limited
1 Minster Court, 10th Floor
Mincing Lane
London
EC3R 7AA
United Kingdom

Registered in England and Wales: No. 7139960

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

Ratings

  • US = Lead Analyst based in USA
  • CA = Lead Analyst based in Canada
  • EU = Lead Analyst based in EU
  • UK = Lead Analyst based in UK
  • E = EU endorsed
  • U = UK endorsed
  • Unsolicited Participating With Access
  • Unsolicited Participating Without Access
  • Unsolicited Non-participating

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.