Morningstar DBRS Confirms "A" Credit Ratings on Intesa Sanpaolo S.p.A. Covered Bonds (OBG - Mortgages - Programme 2)

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit ratings on the Obbligazioni Bancarie Garantite (OBG; the Italian legislative covered bonds) issued under the Intesa Sanpaolo S.p.A. Covered Bonds Programme 2 (ISP OBG2 or the Programme). This rating action follows the completion of a full review of the credit ratings.

Concurrently, Morningstar DBRS discontinued its credit ratings on Series 32 (ISIN: IT0005362998) and Series 21 (ISIN: IT0005214777), which matured in February 2024 and August 2024, respectively.

As of today, there are 25 series of OBG outstanding under the Programme, guaranteed by ISP OBG S.r.l., amounting to EUR 38.3 billion.

CREDIT RATING RATIONALE

The credit ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of "A", which is Intesa Sanpaolo (ISP)'s Long Term Critical Obligations Rating. ISP is the Issuer and Reference Entity (RE) for the Programme.
-- A Legal and Structuring Framework (LSF) Assessment of "Adequate" associated with the Programme.
-- An LSF-L of "A".
-- No uplift for recovery prospects.
-- A level of overcollateralisation (OC) of 12.9% to which Morningstar DBRS gives credit, which is the minimum level observed in the last 12 months adjusted by a scaling factor of 0.9. The Issuer commits to an asset percentage of 94.5%, which translates to an OC commitment of 5.8%.
-- The sovereign rating of the Republic of Italy, rated BBB (high) with a Positive trend by Morningstar DBRS, as of the date of this press release.

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

The total outstanding amount of OBG is EUR 38.3 billion as of the date of this press release. The total outstanding amount of OBG was EUR 39.6 billion as of 30 June 2024 (the cut-off date), while the aggregate balance of the CP was EUR 40.7 billion of mortgage loans plus EUR 4.5 billion of cash collections, resulting in a total OC of 14.3%.

As of the cut-off date, the mortgage CP comprised 527,326 loans with a split of 91.3% residential versus 8.7% nonresidential, based on the type of property. The CP has a weighted-average (WA) indexed current loan-to-value ratio of 45.9% and a WA seasoning of 7.8 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 (22.9% by outstanding loan balance), Veneto (12.1%), and Lazio (11.1%).

The CP comprised fixed-rate (75.4% of the total outstanding balance) and floating-rate loans (24.6% of the total outstanding balance). The floating-rate mortgage loans are indexed to different plain vanilla bases and reset at different dates while the 100% floating-rate liabilities are linked to three-month Euribor plus a spread. The transaction is exposed to interest rate risk because the transaction has no swap contracts in place. Morningstar DBRS considered this in its cash flow analysis.

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

As of the cut-off date, the WA life of the CP was 9.0 years while the WA life of the OBG was 6.5 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.

Morningstar DBRS assessed the LSF related to the ISP OBG2 as "Adequate", according to its rating methodology. For more information, please refer to the DBRS Morningstar commentary "Italian Obbligazioni Bancarie Garantite Legal and Structuring Framework" available at https://www.dbrsmorningstar.com.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' 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 both the Issuer and the Republic of Italy (the Sovereign) are likely to have an impact on this credit rating. ESG factors that have a significant or relevant effect on the credit analysis of the issuer are discussed separately at https://www.dbrsmorningstar.com/issuers/18264.

ESG Considerations had a significant effect on the credit analysis. The Social and Governance factors impact the Programme as the ESG factors for the Issuer and the Sovereign are passed through to the rated bonds issued under the Programme given that the covered bonds' credit ratings would be impacted by changes of the credit ratings of the Issuer and/or the Sovereign.

There were no Environmental factors 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 ratings is: Global Methodology for Rating and Monitoring Covered Bonds (02 April, 2024) https://dbrs.morningstar.com/research/430636.

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

Morningstar DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the surveillance section of the principal methodology.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent credit 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 these credit ratings include historical performance data (static pool default and prepayments data from 2014 to 2024) as well as loan-level and stratification information on the CP as of 30 June 2024 provided by the Issuer.

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

At the time of the initial credit rating , Morningstar DBRS was not 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 these credit ratings 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.

The last credit rating action on this issuer took place on 3 November 2023, when Morningstar DBRS confirmed its "A" credit ratings on the CB series outstanding under the Programme.

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.

These credit ratings are 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: 7 November 2014

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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 (18 September 2024) and European RMBS Insight Model version 10.0.0.0, https://dbrs.morningstar.com/research/439573
-- European RMBS Insight: Italian Addendum (30 September 2024),
https://dbrs.morningstar.com/research/440245
-- Global Methodology for Rating CLOs and Corporate CDOs (19 September 2024),
https://dbrs.morningstar.com/research/439759
-- Rating CLOs Backed by Loans to European SMEs (18 September 2024) and SME Diversity Model version 2.7.1.4, https://dbrs.morningstar.com/research/439574
-- 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 (24 September 2024),
https://dbrs.morningstar.com/research/439913
-- Operational Risk Assessment for European Structured Finance Originators and Servicers (18 September 2024),
https://dbrs.morningstar.com/research/439571
-- 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/439604.

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at [email protected].