Morningstar DBRS Confirms AA (low) Credit Ratings on BPER Banca S.p.A. Covered Bonds (OBG - Mortgages - Programme 3)

DBRS Ratings GmbH (Morningstar DBRS) confirmed its AA (low) credit ratings on the Obbligazioni Bancarie Garantite (OBG; the Italian legislative covered bonds) issued under the BPER Banca S.p.A. Covered Bonds Programme 3 (the Programme). This credit rating action follows the completion of a full review of the Programme.

As of the date of this credit rating action, there were 12 series of OBG under the Programme, totalling an outstanding nominal amount of EUR 1.5 billion. The series are 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 observed prepayment rate for the analysis.

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 (low).

BNP Paribas, Italian branch acts as the account bank for this transaction. Based on its Morningstar DBRS' private rating and on the replacement provisions included in the documentation, Morningstar DBRS considers the risk of such counterparty to be consistent with the credit ratings assigned, in accordance with its "Legal and Derivative Criteria for European Structured Finance Transactions" and "Global Methodology for Rating and Monitoring Covered Bonds".

The total outstanding amount of OBG is currently EUR 1.5 billion.
As of 31 December 2024, the CP was composed of EUR 2.5 billion of residential (93.5% of the loan balance) and commercial (2.6%) mortgages, plus EUR 0.1 billion of cash, resulting in a total OC of 79.5%.

The weighted-average (WA) current loan-to-value ratio of the mortgages was 51.3% with an average seasoning of 5.2 years as of 31 December 2024. The assets securing the loans in the CP were mainly located in the Italian regions of Liguria (21.1% of the loan balance) and Lombardy (19.6%).

The CP comprised fixed-for-life loans (83.9% by outstanding balance) and floating-rate loans (16.1%). The floating-rate mortgage loans are indexed to different plain-vanilla indices and reset at different dates. By comparison, 100% of the liabilities pay a fixed rate. Morningstar DBRS considered the resulting interest risk as unhedged 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.

The weighted-average life (WAL) of the CP was 9.6 years as of 31 December 2024, whereas the WAL of the OBG was 4.3 years, considering the expected maturities. The resulting asset-liability maturity mismatch is mitigated by the 12-month maturity extension and by the OC. Only Series 646 features 12-month maturity extension.

Morningstar DBRS assessed the LSF related to the Programme as "Adequate", according to its rating methodology. For more information, please refer to the Morningstar DBRS commentary, "Italian Obbligazioni Bancarie Garantite Legal and Structuring Framework", which is available on 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 the Issuer 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 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 Credit 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 2024) as well as loan-level and stratification information on the CP as at 30 September 2024 and 31 December 2024, respectively, 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 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 6 September 2024, when Morningstar DBRS assigned a credit rating to a new issuance under this Programme.

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, Senior 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 (02 April 2024)
https://dbrs.morningstar.com/research/430636
-- European RMBS Insight Methodology (3 December 2024) and European RMBS Insight model v 10.1.0.0
https://dbrs.morningstar.com/research/444100
-- Global Methodology for Rating CLOs and Corporate CDOs (19 November 2024)
https://dbrs.morningstar.com/research/443207
-- Rating CLOs Backed by Loans to European SMEs (19 November 2024) and SME Diversity Model version 2.7.1.5
https://dbrs.morningstar.com/research/443198
-- Global Methodology for Rating Banks and Banking Organisations (4 June 2024)
https://dbrs.morningstar.com/research/433881
-- Legal and Derivative Criteria for European Structured Finance Transactions (19 November 2024)
https://dbrs.morningstar.com/research/443196
-- 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 info-DBRS@morningstar.com.