DBRS Takes Rating Actions on the Existing and the New Series of Securities in Intesa Sanpaolo Covered Bond Programme Guaranteed by ISP OBG S.r.l.

DBRS Ratings Limited (DBRS) has today confirmed its A (high) ratings and removed the Under Review with Developing Implications status on the Obbligazioni Bancarie Garantite (OBG, the Italian legislative covered bonds) outstanding under the Intesa Sanpaolo Covered Bond Programme Guaranteed by ISP OBG S.r.l. (the Programme). DBRS has also assigned an A (high) rating to the new Series 19 OBG. At the same time, DBRS has discontinued its rating on Series 5 (ISIN: IT0004935869) following its full redemption at maturity. The rating actions follow the completion of a full review of the Programme.

The OBG ratings were placed Under Review with Developing Implications on 26 May 2015, when DBRS published a Request For Comments for the “Rating European Covered Bonds” methodology (the Methodology). The review of the rating is resolved following the publication of an updated Methodology on 8 September 2015.

Series 19 is a EUR 1.375 billion floating-rate OBG maturing in February 2023. After the new issuance, there are currently EUR 19.585 billion OBG outstanding under the Programme.

The rating actions are based on the following analytical considerations:

-- A Covered Bonds Attachment Point (CBAP) of A (low). Intesa Sanpaolo S.p.A. is the Issuer and Reference Entity for the Programme.
-- A legal and structuring framework (LSF) assessment of Strong associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of BB, being the minimum CPCA in line with the rating of the covered bonds.
-- An LSF-implied likelihood (LSF-L) of A (low).
-- Two notches uplift from LSF-L for high recovery prospects.
-- An Issuer-Commitment Asset Percentage of 89.29% to which the Issuer commits contractually. This is an equivalent commitment of 12% overcollateralisation.

DBRS has assessed the LSF related to the Programme as 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,” both available at www.dbrs.com.

As of the end of June 2015, the Cover Pool (CP) included €18.14 billion residential mortgages and €3.59 billion commercial loans (the latter of which include about €2 billion mortgage loans to producer families). The performance of the CP is in line with DBRS’s expectation. As a result, default and loss severity assumptions on the cover pool were confirmed.

The transaction was modelled using the DBRS European Covered Bond Cash Flow Model. The main assumptions focused on the timing of defaults, recoveries of the assets, interest rate stresses and market value spreads to calculate liquidation values on the cover pool. For the downward interest rate curve stress scenario, the interest rates are floored at zero.

Following a wind-down cash flow simulation aimed at covering the cost of funding under a stress scenario, which yielded high recovery prospects, DBRS granted two notches uplift from the LSF-L of A (low). As a result, DBRS has confirmed the OBG ratings at A (high).

Intesa Sanpaolo S.p.A. is also the account bank for the Programme. The CBAP, at A (low), is in line with the A (high) rating on the OBG, in accordance with DBRS’s Legal Criteria for European Structured Finance Transactions methodology and the Rating European Covered Bonds methodology.

Everything else being equal, the ratings of the Programme would be downgraded if any of the following occurred: (1) the CBAP were downgraded to BBB or below, (2) the sovereign rating of the Republic of Italy were downgraded below A (low), (3) the LSF Assessment associated with the Programme were downgraded; (4) the quality and consistency of the cover pool were no longer sufficient to support a two-notch uplift for high recovery prospects, or (5) volatility in the financial markets caused the currently estimated market value spreads to be increased.

The lead analyst responsibilities for this transaction have been transferred to Vito Natale.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is “Rating European Covered Bonds” (8 September 2015). DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

A review of the transaction legal documents was not conducted as the documents have remained unchanged since the most recent rating action.

Other methodologies and criteria referenced in this transaction are listed at the end of this press release. This may be found at http://www.dbrs.com/about/methodologies.

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 historical default performance data and loan-by-loan level information on the CP provided by the Issuer that allowed DBRS to further assess the portfolio.

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 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 transaction took place on 26 May 2015, when DBRS placed the ratings of the outstanding OBG Under Review with Developing Implications.

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: 7 November 2014
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Vito Natale
Rating Committee Chair: Quincy Tang

DBRS Ratings Limited
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United Kingdom
Registered in England and Wales: No. 7139960

The rating methodologies 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
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Unified Interest Rate Model Methodology for European Securitisations
-- Derivative Criteria for European Structured Finance Transactions
-- Rating CLOs Backed by Loans to European Small and Medium-Sized Enterprises (SMEs)

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