Morningstar DBRS Assigns AA (low) Credit Rating to BPER Banca S.p.A. Covered Bonds (OBG - Mortgages - Programme 3) New Issuance

DBRS Ratings GmbH (Morningstar DBRS) assigned a credit rating of AA (low) to the Series 654 (ISIN IT0005611147) bond, a EUR 500 million fixed-rate bond that pays a 1.0% coupon and matures on 27 October 2028. The extended maturity date for this series is 27 January 2030. The bond has been issued under the BPER Banca S.p.A. (BPER or the Issuer) covered bond programme (BPER OBG3 or the Programme) guaranteed by Carige Covered Bond S.r.l. (the Guarantor).

The credit ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of A (low), which is the Long-Term Critical Obligations Rating of BPER. BPER is the Issuer and Reference Entity for the Programme. Morningstar DBRS classifies Italy as a jurisdiction in which covered bonds are a particularly important funding instrument and deems the CP strategic for the core activity of the Issuer.
-- A Legal and Structuring Framework (LSF) Assessment of "Adequate" associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of BBB, which is the lowest CPCA in line with the final LSF-Implied Likelihood (LSF-L).
-- An LSF-L of A (high).
-- A one-notch uplift on the LSF-L for good recovery prospects.
-- A committed minimum overcollateralisation (OC) of 34%, and the 42.7% OC to which Morningstar DBRS gives credit, equal to the minimum level observed in the past 12 months, adjusted by a scaling factor of 0.85.
-- The sovereign rating of the Republic of Italy, rated BBB (high) with a Stable trend by Morningstar DBRS, as of the date of this rating action.

Morningstar DBRS analysed the transaction with its European Covered Bond Cash Flow Tool. 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 CP. Morningstar DBRS assumed several prepayment scenarios, starting from the observed prepayment rate.

Everything else equal, a one-notch downgrade of the CBAP would lead to a two-notch downgrade of the LSF-L, resulting in a two-notch downgrade of the CB ratings.

In addition, all else remaining equal, Morningstar DBRS would downgrade the credit ratings if any of the following occurred: (1) the CPCA was downgraded below BBB; (2) the quality of the CP and the level of OC were no longer sufficient to support a one-notch uplift for good recovery prospects; (3) the relative amortisation profiles of the OBG and CP were to move adversely; (4) the LSF assessment associated with the Programme was downgraded; (5) volatility in the financial markets caused the currently estimated market value spreads to increase, or (6) the sovereign rating on the Republic of Italy was downgraded below BBB (high).

As of the date of this press release, there are 12 outstanding series of OBG under the Programme, totalling a nominal amount of EUR 1.5 billion. As of 30 June 2024, the total CP balance included EUR 2.75 billion of mortgages and EUR 193 million of principal receipts, while the outstanding liabilities totalled 1.9 billion, which resulted in a total OC of 50.6%, net of set-off amount.

Morningstar DBRS assessed the LSF related to the Programme as "Adequate" according to its credit rating methodology. For more information, please refer to the Morningstar DBRS commentary "Italian Covered Bonds Legal and Structuring Framework Review", available at https://dbrs.morningstar.com.

For further information on the Programme, please refer to the rating report at https://dbrs.morningstar.com.

Morningstar DBRS' credit rating on the new series addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for the new series are the related Interest Payment Amounts and the related Principal Balance.

Morningstar DBRS' credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations.

Morningstar DBRS's long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
Credit rating actions on BPER are likely to have an impact on this credit rating.

There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024), https://dbrs.morningstar.com/research/437781 .

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit rating is Global Methodology for Rating and Monitoring Covered Bonds (2 April 2024), https://dbrs.morningstar.com/research/430636 .

Other methodologies referenced in this transaction are listed at the end of this press release.

A review of the transaction legal documents was limited to the documentation pertaining to the issuance of the new series. All the other documents have remained unchanged since the most recent rating action.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit ratings, please refer to "Appendix C: The Impact of Sovereign Ratings on Other Morningstar DBRS Credit Ratings" of the "Global Methodology for Rating Sovereign Governments" at: https://dbrs.morningstar.com/research/436000.

The sources of data and information used for this credit rating include historical performance data (static pool default data for the residential pool from 2018 to 2022; dynamic pool recovery data for loans defaulted between 1995 and 2022; and dynamic pool prepayments data from 2015 to 2023) as well as loan-level and stratification information on the CP as at 30 September 2023 and 30 June 2024, respectively, provided by the Issuer.

Morningstar DBRS did not rely upon third-party due diligence in order to conduct its analysis.

Morningstar DBRS was supplied with third-party assessments. However, this did not affect the credit rating analysis.

Morningstar DBRS considers the data and information available to it for the purposes of providing this credit rating to be of satisfactory quality.

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

This credit rating concerns a newly issued financial instrument. This is the first Morningstar DBRS credit rating on this financial instrument.

The last credit rating action on this issuer took place on 21 February 2024, when Morningstar DBRS downgraded its credit ratings on the Programme to AA (low) from AA.

The lead analyst responsibilities for this transaction have been transferred to Tomas Rodriguez-Vigil Junco.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Tomas Rodriguez-Vigil Junco, Vice President,
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: November 23, 2015

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

-- Global Methodology for Rating and Monitoring Covered Bonds (2 April 2024), https://dbrs.morningstar.com/research/430636
-- European RMBS Insight Methodology (25 March 2024) and European RMBS Insight Model version 9.0.0.0, https://dbrs.morningstar.com/research/430103
-- European RMBS Insight: Italian Addendum (28 June 2024), https://dbrs.morningstar.com/research/435263
-- Global Methodology for Rating Banks and Banking Organisations (4 June 2024), https://dbrs.morningstar.com/research/433881
-- Legal Criteria for European Structured Finance Transactions (28 June 2024), https://dbrs.morningstar.com/research/435165
-- Interest Rate Stresses for European Structured Finance Transactions (28 June 2024), https://dbrs.morningstar.com/research/435278
-- Global Methodology for Rating CLOs and Corporate CDOs (23 February 2024), https://dbrs.morningstar.com/research/428544
-- Rating CLOs Backed by Loans to European SMEs (20 June 2024) and SME Diversity Model version 2.7.1.4, https://dbrs.morningstar.com/research/434775
-- Operational Risk Assessment for European Structured Finance Servicers (6 August 2024), https://dbrs.morningstar.com/research/437543
-- Operational Risk Assessment for European Structured Finance Originators (6 August 2024),
https://dbrs.morningstar.com/research/437541
-- Global Methodology for Rating Sovereign Governments (15 July 2024),
https://dbrs.morningstar.com/research/436000
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024), https://dbrs.morningstar.com/research/437781

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/278375.

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.