Banco Desio could issue a debut covered bond, having established an OBG programme and received a AA- rating from Fitch for an expected Eu500m issue. The Italian bank is yet to access wholesale markets, according to the rating agency, which previously flagged its undiversified funding.

Banco di Desio e Brianza published a base prospectus for the Eu3bn soft bullet obbligazioni bancarie garantite (OBG) programme on Friday. BNP Paribas is arranger of the programme and dealer.

Fitch yesterday (Monday) assigned Banco Desio’s first OBGs an expected rating of AA- with a stable outlook, based on an expected issue size of Eu500m with a seven year maturity. Banco Desio is rated BBB- by Fitch.

The OBG rating takes into account an undertaking by the issuer to maintain a maximum asset percentage (AP) of 77% – equivalent to overcollateralisation of 29.9% – which exceeds Fitch’s AA- breakeven AP of 78.5% (equivalent to OC of 27.4% OC).

“Based on the IDR and the uplifts, the OBG’s rating could reach a maximum equal to Fitch’s country ceiling of AA for Italy,” added Fitch. “However, the OBG rating is constrained by the 77% AP.”

Banco Desio’s cover pool is 70% comprised of assets originated by Desio and 30% by Banca Popolare di Spoleto, a regional bank Desio acquired in 2014. Fitch added that the origination policies of the two banks were comparable before the acquisition and were harmonised in April 2015.

Fitch affirmed Banco Desio’s issuer default rating (IDR) at BBB- on 20 June. The rating agency said the bank’s ratings partly reflect that its profitability is vulnerable to its stable but undiversified funding.

The bank has not previously accessed wholesale markets, according to Fitch, which said that contingent access to ECB facilities underpins its funding and liquidity. ECB funding rose to 15% of Banco Desio’s total assets in March, following its participation in the last tranche of TLTRO II, Fitch noted.

Photo credit: Banco Desio