Press Release

DBRS Morningstar Confirms A (high) Ratings of Intesa Sanpaolo S.p.A. Covered Bonds Guaranteed by ISP OBG S.r.l.

Covered Bonds
November 08, 2019

DBRS Ratings Limited (DBRS Morningstar) confirmed the A (high) ratings of the Obbligazioni Bancarie Garantite (OBG, the Italian legislative covered bonds) issued under the Intesa Sanpaolo S.p.A. (ISP or the Issuer) EUR 40 billion covered bond programme (ISP OBG or the Programme) guaranteed by ISP OBG S.r.l. The action follows the completion of the annual review of the Programme.

The A (high) ratings assigned to ISP OBG reflect the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of “A”, which is the Long-Term Critical Obligations rating (LT-COR) of ISP. ISP is the Issuer and Reference Entity (RE) for the Programme. DBRS Morningstar classifies the Republic of Italy (rated BBB (high) with a Stable trend by DBRS Morningstar) as a jurisdiction in which covered bonds are a particularly important funding instrument and deems the cover pool (CP) strategic for the core activity of the Issuer.
-- A Legal and Structuring Framework (LSF) Assessment of “Adequate” assigned to the Programme.
-- An LSF-Implied Likelihood (LSF-L) of “A”.
-- A one-notch uplift for good recovery prospects.
-- The minimum overcollateralisation (OC) observed over the last four quarters is 15.2%. However, DBRS Morningstar gives credit to a limited level equal to 8%, which is the level of OC that DBRS Morningstar considers sustainable based on information from the Issuer and market developments. The Issuer commits to an asset percentage of 94.5%, which translates into an OC commitment of 5.82%.

The transaction was analysed with the DBRS Morningstar European Covered Bond Cash Flow tool. The main assumptions focused on the timing of defaults and recoveries of the assets and interest rate stresses.
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 CB rating by one notch. In addition, the ratings of ISP OBG would be downgraded if the quality of the CP and the level of OC were no longer sufficient to support a one-notch uplift for good recovery prospects.

There are currently 23 series outstanding for a total amount of EUR 35.5 billion. As of September 2019, the aggregate balance of the assets in the CP was EUR 41.8 billion, including EUR 38.4 billion of residential and commercial mortgages (defaulted loans included), plus EUR 3.4 billion of cash collections (considering principal component and reserve fund required amount), resulting in an estimated OC of 17.5%.

As of September 2019, the CP comprised 479,190 loans with a 91.7% residential versus an 8.3% non-residential split, based on the type of property as defined in the Ministry of Finance Decree 12/2006 n.310. The CP has a weighted-average (WA) current loan-to-value ratio of 43.2% and a WA seasoning of 6.1 years. The mortgages were originated by ISP and network banks that are part of the ISP group. The CP is geographically diversified, with the highest concentrations in the Italian regions of Lombardy (19.2% by outstanding loan balance), Veneto (14.4%) and Apulia (10.4%).

The CP comprised fixed-rate (65.0% of the total outstanding balance) and floating-rate loans (35.0% of the total outstanding balance). The floating-rate mortgage loans are indexed to different plain vanilla bases and reset at different dates. This compares with 100.0% floating-rate liabilities linked to three-month Euribor plus a spread.
Part of the interest rate risk in the transaction is hedged with swaps with Intesa Sanpaolo S.p.A. and Banco di Napoli S.p.A. (thatwas incorporated into ISP as of November 2018) on their respective portfolios. Swap documentation embeds DBRS Morningstar derivatives criteria and DBRS Morningstar has taken swaps into account in its cash flow analysis.

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

As of September 2019, the WA life of the CP was 9.3 years, while the WA life of the OBG calculated as of today is 6.7 years, based on the expected maturity. This generates an asset/liability mismatch, which is partially mitigated by the 12-month maturity extension in case of an Issuer event of default and by the OC in place. DBRS Morningstar has assessed the LSF related to the ISP OBG as “Adequate” according to its rating methodology. For more information, please refer to the “Italian Obbligazioni Bancarie Garantite Legal and Structuring Framework” commentary available at

All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Rating and Monitoring Covered Bonds.”

DBRS Morningstar 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 referenced in this transaction are listed at the end of this press release. These may be found on at:

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” methodology at:

The sources of data and information used for these ratings include static default data, investor reports and loan-by-loan data on the CP provided by the Issuer that allowed DBRS Morningstar to further assess the portfolio.

DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS Morningstar does not rely upon third-party due diligence in order to conduct its analysis. At the time of initial rating, DBRS Morningstar was not supplied with third party assessments. However, this did not impact the rating analysis.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating process.

The last rating action on this transaction took place on 24 June 2019, when DBRS Morningstar assigned A (high) ratings to Series 34, 35 and 36 of ISP OBG.

Information regarding DBRS Morningstar ratings, including definitions, policies and methodologies, is available on

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see:

Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.

Lead Analyst: Alessandra Maggiora, Assistant Vice President
Rating Committee Chair: Ketan Thaker, Senior Vice President
Initial Rating Date: 7 November 2014

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

The rating methodologies used in the analysis of this transaction can be found at:

-- Rating and Monitoring Covered Bonds
-- Rating and Monitoring Covered Bonds Addendum: Market Value Spreads
-- Global Methodology for Rating 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 SMEs
-- Interest Rate Stresses for European Structured Finance Transactions
-- Global Methodology for Rating Sovereign Governments

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at:

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