Banco Popolare mortgage covered bonds were yesterday (Monday) assigned an A rating by DBRS, a move that had been expected with an announcement of the withdrawal of Fitch’s BB+ rating of the OBGs on Friday.

The Banco Popolare Societa Cooperativa OBG (obbligazioni bancarie garantite) Programme 1 will be rated A2/A by Moody’s and DBRS once Fitch’s BB+ rating is officially removed in the coming weeks, meaning that it will enjoy improved regulatory treatment (see yesterday’s article for more background).

DBRS said that the A rating reflects five factors, according to its covered bond rating methodology: a Covered Bonds Attachment Point (CBAP) of BBB (high), with Banco Popolare (rated BBB (low)) being the issuer and Reference Entity of the programme; a Legal & Structuring Framework (LSF) assessment of Adequate and an LSF-Implied Likelihood (limited by the CBAP) of BBB (high); a two notch uplift for high recovery prospects; and a 14.95% overcollateralisation level DBRS gives credit to as the minimum observed OC level during the past 12 months, adjusted by a scaling factor of 0.9.

In relation to the latter, DBRS noted that it gives limited credit to the cash accumulating on the account bank. Banco Popolare acts as transaction account bank and the replacement trigger on Banco Popolare in its capacity as account bank is not fully compliant with the rating agency’s counterparty criteria, DBRS said.

Banco Popolare was assigned a Critical Obligation Rating (COR) of BBB (high) by DBRS on 4 February, the rating agency noted, with CORs set to play a role in determining CBAPs according to an RFC published by DBRS. No rating impact is expected, DBRS said.