DBRS Assigns Rating to Intesa Sanpaolo S.p.A. Covered Bonds Guaranteed by ISP OBG S.r.l. Series 20

DBRS Ratings Limited (DBRS) has today assigned an A (high) rating to the Series 20 Obbligazioni Bancarie Garantite (OBG, the Italian legislative Covered Bonds) issued under the Intesa Sanpaolo S.p.A. (ISP or the Issuer) EUR 30,000,000,000 covered bond programme (ISP OBG or the Programme) guaranteed by ISP OBG S.r.l. Series 20 is a EUR 1,600 million floating-rate OBG maturing in August 2023.

Concurrently, DBRS has confirmed its A (high) rating on the other OBG outstanding under the Programme. Following repayment of Series 7 on 20 May 2016, there are 14 series of OBG for a nominal amount of EUR 19.81 billion outstanding under the Programme.

The A (high) rating assigned to ISP OBG reflects the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of A (high), being the Long-Term Critical Obligations rating of ISP. ISP is the Issuer and Reference Entity for the Programme.
-- A Legal and Structuring Framework (LSF) Assessment of Strong assigned to the Programme.
-- An LSF-Implied Likelihood (LSF-L) of A (high).
-- No uplift for recovery prospects.
-- A committed asset percentage of 94.5%, equivalent to 5.82% of overcollateralisation.

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 being equal, a downgrade of the CBAP by one notch would lead to a downgrade of the LSF-L by one notch, resulting in a downgrade of the covered bonds rating by one notch.

As of 31 March 2016 the total outstanding amount of OBG was EUR 19.585 billion while the aggregate balance of loans in the cover pool (CP) was EUR 20.96 billion of residential and commercial mortgages, plus EUR 3.3 billion of cash collections, resulting in a total overcollateralisation (OC) of 23.87%. This falls slightly to 22.5% when considering OBG outstanding as of today.

As of 31 March 2016, the CP comprised 306,866 loans. The mortgages have been originated by network banks that are part of the ISP group.

The weighted-average current loan-to-value of the mortgages was 46.65% with a seasoning of 7.3 years. The CP was mainly distributed in Lombardy (23.7%), Puglia (18.3%) and Campania (11.2%) by original outstanding balance.

The CP comprised fixed-rate (40.5% by original outstanding balance) and floating-rate loans (59.5%). Such a percentage includes optional loans currently featuring, respectively, a fixed-rate and a floating-rate coupon. The floating-rate mortgage loans are indexed to a different plain vanilla basis and reset at different dates.

All CP assets are denominated in euros, as well as all OBG. As such, investors are not currently exposed to any foreign exchange risk.

As of 31 March 2016 the weighted-average life of the cover pool was longer than the 3.04 years weighted-average life of the OBG, calculated taking into account the expected maturity. This risk is partially mitigated by the 12-month maturity extension in case of an Issuer event of default and by the overcollateralisation.

DBRS has assessed the LSF related to the ISP OBG as Strong according to its rating methodology. For more information, please refer to DBRS commentary “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.” This can be found at http://www.dbrs.com/about/methodologies. In DBRS’s opinion, the change(s) under consideration do not require the application of the entire principal methodology. Therefore, an asset analysis was not conducted. A review of the transaction’s legal documents was limited to the documentation pertaining to the issuance of Series 20. All the other 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 on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include historical default performance data, loan-by-loan level as well as stratification 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 these ratings was of satisfactory quality.

DBRS does not rely upon third-party due diligence in order to conduct its analysis. DBRS was 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 transaction took place on 3 May 2016, when DBRS confirmed the A (high) rating and removed the Under Review with Positive Implications status on the programme.

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: 7 November 2014
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Vito Natale, Senior Vice President
Rating Committee Chair: Erin Stafford, Managing Director

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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- Rating European Covered Bonds
-- Rating European Covered Bonds Addendum: Market Value Spreads Range (Midpoints)
-- Global Methodology for Rating Banks and Banking Organisations
--Critical Obligations Rating Criteria
-- DBRS Criteria: Support Assessments for Banks and Banking Organisations
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Operational Risk Assessment for European Structured Finance Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating CLOs and CDOs of Large Corporate Credit
-- Rating CLOs Backed by Loans to European Small and Medium-Sized Enterprises (SMEs)
-- Unified Interest Rate Model Methodology for European Securitisations
-- The Effect of Sovereign Risk on Securitisations in the Euro Area
-- Sovereign Ratings Provide a Benchmark for other DBRS Credit Ratings

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.