DBRS Maintains Under Review with Negative Implications Status on Banca Monte dei Paschi di Siena Programme 2

DBRS Ratings Limited (DBRS) has today maintained its rating of A (low), Under Review with Negative Implications, on all outstanding series of Obbligazioni Bancarie Garantite (OBG; the Italian legislative covered bonds) under Banca Monte dei Paschi di Siena SpA (BMPS) Programme 2 (BMPS P2 OBG) following the completion of the annual review.

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 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 being 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 May 2015, the mortgage cover pool includes residential and commercial mortgage loans with a notional balance of EUR 9.5 billion. There are EUR 7 billion covered bonds outstanding under BMPS P2 OBG.

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, monies 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 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 Programme 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.

As of May 2015, the mortgage cover pool comprised mortgages secured on a residential property (61.4%) as well as commercial (38.6%). 42% of the cover pool notional amount was granted to individuals classified with SAE 600 as per the Bank of Italy definition, and 58% was to other debtors, including SMEs. Out of the total cover pool, 15.4% was granted to employees of the Issuer, and therefore are subject to additional stresses (see rating report published on www.dbrs.com). The reference rate of the underlying loans was split into floating (83.94%) and fixed-rate mortgages (16.06%). 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 (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 rely upon third-party due diligence in order to conduct its analysis; DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

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 May 26, 2015, when DBRS maintained the ratings on the covered bonds to A (low) Under Review Negative Implications following the publication of the Request for Comment for the “Rating European Covered Bonds” methodology.

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 (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: 26 May 2015

Lead Analyst: Vito Natale
Rating Committee Chair: Diana Turner

DBRS Ratings Limited
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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

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375