DBRS Comments: No Impact on Italian Covered Bond (OBG) Ratings Solely from Hypothetical Rating Action on Italian Sovereign

DBRS Ratings Limited (DBRS) has today stated that it expects no impact on the outstanding ratings of the Obbligazioni Bancarie Garantite (OBG, the Italian Legislative Covered Bonds) solely as a result of an assumed downgrade of the Republic of Italy Long-Term (LT) Issuer Rating.

Following the placement of the Republic of Italy’s A (low) rating Under Review with Negative Implications on 5 August 2016 (see Related Research to the right of the screen), DBRS forecasts there is no immediate impact that would be due solely to an hypothetical one-notch downgrade of the Republic of Italy LT Issuer Rating. The programme-specific considerations are as follows:

Banca Monte dei Paschi di Siena S.p.A. Covered Bonds (OBG – Mortgages – Programme 1) – The OBG are currently rated A (high) Under Review with Negative Implications. Given the conditional pass-through nature of the programme, the hypothetical sovereign downgrade is not expected to bear any weight on the Legal and Structuring Framework (LSF) assessment of Very Strong associated with the Programme. Moreover, the overcollateralisation (OC) DBRS gives credit to is expected to compensate for the additional stresses that would be factored into DBRS’s analysis should the sovereign be downgraded to BBB (high). The Under Review with Negative Implications status on the OBG ratings is driven by the Critical Obligations Rating (COR) of the issuer being Under Review with Negative Implications.

Banca Monte dei Paschi di Siena S.p.A. Covered Bonds (OBG – Mortgages – Programme 2) – The OBG are currently rated “A” Under Review with Negative Implications. Given the conditional pass-through nature of the programme, the hypothetical sovereign downgrade is not expected to bear any weight on the LSF Assessment of Very Strong associated with the Programme. Moreover, the OC DBRS gives credit to is expected to compensate for the additional stresses that would be factored into DBRS’s analysis should the sovereign be downgraded to BBB (high). The Under Review with Negative Implications is driven by the COR of the issuer being Under Review with Negative Implications.

Unione di Banche Italiane S.p.A. Covered Bonds (OBG – Mortgages – Programme 1) – The OBG are currently rated AA (low). Given the soft bullet nature of the programme, with a 12-month extension period, an hypothetical sovereign downgrade to BBB (high) would trigger a downgrade of the LSF assessment to Adequate from the current level of Strong. However, with a Cover Pool Credit Assessment assumed unchanged at BBB (low), the current LSF-implied likelihood of A (high) could be maintained even with an LSF Assessment of Adequate. The OC DBRS gives credit to is expected to compensate for the additional stresses that would be factored into DBRS’s analysis should the sovereign be downgraded to BBB (high).

Unione di Banche Italiane S.p.A. Covered Bonds (OBG – Mortgages – Programme 2) – The OBG are currently rated “A.” Given that this is the same level as the COR of the issuer, DBRS expects no impact on the ratings should the sovereign be downgraded to BBB (high).

Banco Popolare Societa Cooperativa Covered Bonds (OBG – Mortgages – Programme 1) – The OBG are currently rated “A.” Given that the LSF-Implied Likelihood of BBB (high) is floored at the same level as the COR of the issuer, and that the OC DBRS gives credit to is expected to compensate for the additional stresses that would be factored into DBRS’s analysis should the sovereign be downgraded to BBB (high), DBRS expects no impact on the ratings.

Banca Carige S.p.A. Covered Bonds (OBG – Mortgages – Programme 1) – The OBG are currently rated BBB (high). The LSF Assessment of the programme is at Adequate. Contrary to what is stated in the press releases dated 23 November 2015, 25 February 2016 and 31 May 2016 (see Related Research to the right of the screen), but in accordance with the “Rating European Covered Bonds” methodology (see page 17, first and third paragraph), an LSF Assessment of Adequate would still be compatible with a sovereign rating of BBB (high). The OC DBRS gives credit to is expected to compensate for the additional stresses that would be factored into DBRS’s analysis should the sovereign be downgraded to BBB (high). As such DBRS expects no impact on the ratings. DBRS will correct the press releases relating to this transaction to reflect a sensitivity analysis in line with the methodology.

Intesa Sanpaolo S.p.A. Covered Bonds (OBG - Mortgages - Programme 2) — Please see press release “DBRS Places Intesa Sanpaolo S.p.A. Covered Bonds Guaranteed by ISP OBG S.r.l. Under Review with Developing Implications,” released today on www.dbrs.com.

Note:
For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.