DBRS Assigns A (low) Rating to Banca Monte dei Paschi di Siena Programme 2 Covered Bonds Series 17

DBRS Rating Limited (DBRS) has today assigned a rating of A (low) to Series 17 issued by Banca Monte dei Paschi di Siena SpA (BMPS) under Banca Monte dei Paschi di Siena Programme 2 (BMPS P2 OBG).

Series 17 is a EUR 300 million floating-rate security maturing in July 2018. Following the issuance of Series 17 and the repayment of Series 4 for EUR 800 million on April 29, 2015, BMPS has EUR 7.6 billion Obbligazioni Bancarie Garantite (OBG; the Italian legislative covered bonds) outstanding under Programme 2.

This rating is Under Review with Negative Implications because the BMPS Senior Long-Term Debt and Deposit Rating of BBB (low) is also Under Review with Negative Implications.

The rating 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 BMPS P2 OBG.
-- A Legal and Structuring Framework (LSF) Assessment of Very Strong assigned to BMPS P2 OBG.
-- 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 March 2015, the mortgage cover pool includes mortgage loans with a notional balance of EUR 9.7 billion and EUR 1.6 billion 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 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 modelling. As a deviation from its “Rating European Covered Bonds” methodology, DBRS has assumed several prepayment scenarios ranging between 0% and 20% pre-payment rate.

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.

DBRS has assessed the 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 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.

This rating concerns a newly issued financial instrument issued under an existing programme rated by DBRS.

The last rating action on this programme took place on March 26, 2015, when DBRS downgraded ratings on the covered bonds to A (low), Under Review with Negative Implications, following the downgrade of the Issuer Rating, which was maintained at 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 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: 26 March 2015

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 for European Securitisations
-- Interplay of European Structured Finance Rating Methodologies When Analysing Structured Finance Transactions