Morningstar DBRS Assigns AA Credit Rating to Banca Monte dei Paschi di Siena S.p.A. Covered Bonds (OBG - Mortgages Programme 1) New Issuance

DBRS Ratings GmbH (Morningstar DBRS) assigned a credit rating of AA to the Series 34 (ISIN IT0005655334) bond, a EUR 750 million fixed-rate bond that pays a 2.75% coupon and matures on 18 January 2031. The extended maturity date for this series is 18 January 2069.

Morningstar DBRS also discontinued its credit rating on Series 29 (ISIN IT0005482606), which was repaid on 31 March 2025.

CREDIT RATING RATIONALE

The credit ratings are based on the following analytical considerations:
-- A CBAP of BBB (high), which is Banca Monte dei Paschi di Siena's (BMPS) Long Term Critical Obligations Rating. BMPS is the Issuer and Reference Entity for the Programme. Morningstar DBRS classifies the Republic of Italy as a jurisdiction in which covered bonds (CBs) 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 "Very Strong" associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of A (low), which is the lowest in line with the assigned LSF-Implied Likelihood (LSF-L).
-- A LSF-L of A (high).
-- A two-notch uplift on the LSF-L for high recovery prospects.
-- A level of overcollateralisation (OC) of 53.6% to which Morningstar DBRS gives credit, which is the minimum level observed in the last 12 months adjusted by a scaling factor of 0.85. BMPS commits to a maximum asset percentage of 80.0%, corresponding to a level of committed OC of 25.0%.
-- The sovereign rating on 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 Bonds Cash Flow tool. The main assumptions focused on the timing of defaults and recoveries of the assets and interest rate stresses. In accordance with the Morningstar DBRS "Global Methodology for Rating and Monitoring Covered Bonds", Morningstar DBRS did not analyse any forced asset liquidations for this transaction, given the conditional pass-through structure. Morningstar DBRS assumed several prepayment scenarios, ranging between the observed prepayment rate and a 20% prepayment rate.

Everything else being equal, a two-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 rating.
In addition, all else unchanged, the CB ratings would be downgraded if any of the following occurred: (1) the CPCA was downgraded below A (low); (2) the LSF assessment associated with the Programme was downgraded; or (3) the quality of the CP and the level of OC were no longer sufficient to support a two-notch uplift for high recovery prospects.

BMPS OBG1 features a conditional pass-through structure. If the guarantee is enforced, the Guarantor is not contractually bound to pursue a forced asset sale of the CP in a distressed market environment. Notwithstanding this, the Guarantor can still attempt to liquidate the assets with a view to meeting its payment obligations on the pass-through series and on the earliest maturing CBs. In so doing, the Guarantor shall attempt to maintain the Programme's OC proportionally to all asset sales. Additionally, the Programme documentation provides for the sale of the assets to take place only if the amortisation test (which sets the OC at a level of at least 75% of the OC resulting from the asset percentage used on the last test calculation date preceding the service of a guarantee enforcement notice) is complied with before and after the sale. If the amortisation test is breached, all series switch to pass-through payment on a pari passu and pro rata basis. Morningstar DBRS did not account for stresses on forced asset sales in its analysis because the Guarantor is not obliged to liquidate the assets.

As of the date of this press release, there were 12 outstanding series of OBG under the Programme, totalling a nominal amount of EUR 7.7 billion.

As of end March 2025, there were 10 outstanding series of OBG under the Programme, totalling a nominal amount of EUR 6.0 billion; the total CP balance included EUR 12.2 billion of mortgages and EUR 0.25 billion of principal receipts, which resulted in a total estimated OC of 108%, net of set-off amount.

Morningstar DBRS assessed the LSF related to BMPS OBG1 as "Very Strong" 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 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 document(s) that are not financial obligations.

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 BMPS 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 (16 May 2025) https://dbrs.morningstar.com/research/454196 .

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 (25 March 2025) https://dbrs.morningstar.com/research/450542.

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 Series 34. 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 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 these credit ratings include loan-by-loan data as of 31 May 2024, static pool default data spanning from 2003 to 2023, and stratification tables and payment reports provided by the Issuer until March 2025.

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

At the time of the initial credit ratings, 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.

These credit ratings concern newly issued financial instrument. These are the first Morningstar DBRS credit ratings on this financial instrument.

The last credit rating action on this issuer took place on 02 August 2024, when Morningstar DBRS confirmed its credit ratings on the Programme at AA.

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, Sector Lead
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 3 June 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 (25 March 2025)
https://dbrs.morningstar.com/research/450542
-- Global Methodology for Rating Banks and Banking Organisations (23 May 2025)
https://dbrs.morningstar.com/research/454637
-- Legal and Derivative Criteria for European Structured Finance Transactions (19 November 2024)
https://dbrs.morningstar.com/research/443196
-- European RMBS Insight Methodology (8 May 2025) and European RMBS Insight model v.10.1.0.1
https://dbrs.morningstar.com/research/453613
-- 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 (16 May 2025)
https://dbrs.morningstar.com/research/454196

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.