DBRS Comments: Limited Impact on Italian Covered Bonds Ratings Following Rating Action on Italian Sovereign

DBRS Ratings Limited (DBRS) has today announced it expects no additional impact from the downgrade of the Long-Term (LT) Issuer Ratings of the Republic of Italy on 13 January 2017 on the ratings of Italian Obbligazioni Bancarie Garantite (OBG, the Italian Legislative Covered Bonds) it rates. For more information on the Italian sovereign downgrade, please refer to the relevant Press Release http://dbrs.com/research/304610/dbrs-downgrades-italy-to-bbb-high-stable-trend.html.

Specific rating actions were limited to the one-notch downgrade of the ratings of the OBG issued under the Banca Carige S.p.A. Covered Bonds (OBG – Mortgages - Programme 2) to BBB from BBB (high) and the confirmation of the A (high) ratings on the OBG issued under Intesa Sanpaolo S.p.A. Covered Bonds (OBG – Mortgages - Programme 2). For more information, please refer to the relevant Press Release http://www.dbrs.com/research/304758/dbrs-downgrades-banca-carige-s-p-a-covered-bonds-obg-mortgages-programme-1-to-bbb.html and http://www.dbrs.com/research/305002/dbrs-confirms-intesa-sanpaolo-covered-bonds-guaranteed-by-isp-obg-s-r-l-at-a-high-removes-ur-dev.html.

The considerations specific to the other Italian OBG programmes 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 sovereign downgrade did not bear any weight on the Legal and Structuring Framework (LSF) assessment of Very Strong associated with the Programme. Moreover, the overcollateralisation (OC) to which DBRS gives credit, currently 20.5%, compensates for the additional stresses consistent with a BBB (high) sovereign that have been factored into DBRS’s analysis. The Under Review with Negative Implications status on the OBG ratings remains 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 sovereign downgrade did not bear any weight on the Legal and Structuring Framework (LSF) assessment of Very Strong associated with the Programme. Moreover, the OC to which DBRS gives credit, currently 16%, compensates for the additional stresses consistent with a BBB (high) sovereign that have been factored into DBRS’s analysis. The Under Review with Negative Implications status on the OBG ratings remains 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, the sovereign downgrade to BBB (high) has triggered a downgrade of the LSF assessment to Adequate from the previous level of Strong. However, the OC to which DBRS gives credit (currently 15%) compensates for the additional stresses consistent with a BBB (high) sovereign that have been factored into DBRS’s analysis. With a Cover Pool Credit Assessment unchanged at BBB (low), the LSF-Implied Likelihood of A (high) can be maintained even with the new LSF Assessment of Adequate, as can be the one-notch uplift for good recovery prospects.

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, there is no impact on the rating of the OBG.

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 to which DBRS gives credit (currently 14.95%) compensates for the additional stresses consistent with a BBB (high) sovereign that have been factored into DBRS’s analysis, there is no impact on the ratings.

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