Fitch Affirms Banca Carige's OBG at 'BBB+'; Outlook Negative

Wed Jun 25, 2014 11:31am EDT

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(The following statement was released by the rating agency) MILAN/LONDON, June 25 (Fitch) Fitch Ratings has affirmed Banca Carige S.p.A. - Cassa di Risparmio di Genova e Imperia Siglabile's (Carige, BB/Negative/B; Viability Rating: b-/RWN) EUR2.921bn mortgage covered bonds (obbligazioni bancarie garantite, OBG) at 'BBB+' with a Negative Outlook. The affirmation follows the annual review of the programme. KEY RATING DRIVERS The 'BBB+' rating is based on Carige's Long-term (LT) Issuer Default Rating (IDR) of 'BB', an IDR uplift of 0, Discontinuity Cap (D-Cap) of 1 (very high risk) and the 80% asset percentage (AP) that Fitch takes into account in its analysis. The Negative Outlook on Carige's IDR drives the Negative Outlook on the covered bonds' rating. Fitch has revised down the breakeven AP for the 'BBB+' rating to 86% from 87% reflecting its revised assumptions for assessing the credit risk of Italian residential mortgage loans, mainly driven by the increase in the foreclosure frequency adjustment for non-Italian borrowers (see "Fitch Updates Italian Mortgage Assumptions; Limited Rating Impact Expected" and "Criteria Addendum: Italy" dated 5 June 2014 at www.fitchratings.com). The 5.6% 'BBB+' weighted average (WA) loss rate for the portfolio results from the 24.8% WA foreclosure frequency and 77.4% WA recovery rate that Fitch has calculated on the cover pool. As of end-March 2014, the EUR4.9bn cover pool comprised 93.6% residential mortgage loans with the remainder 6.4% of loans granted to Italian small and medium-sized enterprises. The unchanged D-Cap of 1 reflects the weak link assessment of the liquidity gap and systemic risk component. In a scenario where the recourse of the covered bonds switches from the issuer to the cover pool, Fitch believes that a successful sale of the cover assets would be challenging within the extendible maturity of 15 months, which is envisaged in the documentation to make timely payments on the covered bonds. The 80% AP that Fitch relies upon supports a 'BB+' rating on the covered bonds on a probability of default (PD) basis and is adequate to achieve recoveries in excess of 91% should the covered bonds default, supporting a three-notch uplift to 'BBB+', being the PD rating sub-investment grade. Fitch takes into account the AP publicly disclosed by the issuer in its test performance report, because Carige's Short-Term IDR is below 'F2'. The OBG programme benefits from an asset swap with Credit Suisse International (CSI, A/Stable/F1) on 88.8% of the cover pool and liability swaps on a notional which is equal to 98% of the covered bonds. In its cash flow analysis, Fitch has taken into account the interest rate mismatches under its stable, increasing and decreasing interest rate scenarios. RATING SENSITIVITIES The 'BBB+' rating would be vulnerable to downgrade if any of the following occurs: (i) Carige's LT IDR is downgraded by one or more notches to 'BB-' or below; or (ii) the D-Cap is reduced to 0; or (iii) the AP that Fitch considers in its analysis increases above Fitch's 'BBB+' breakeven level of 86%. The Fitch breakeven AP for the covered bond rating will be affected, amongst others, by the profile of the cover assets relative to outstanding covered bonds, which can change over time, even in the absence of new issuance. Therefore the breakeven AP to maintain the covered bond rating cannot be assumed to remain stable over time. More details on the portfolio and Fitch's analysis will be available in a credit update report, which will shortly be available at www.fitchratings.com. Contact: Primary Analyst Roberto Del Ragno Analyst +39 02 87 90 87 206 Fitch Italia S.p.A Via Morigi, 6 - Ingresso via Privata Maria Teresa, 8 Milan 20123 Secondary Analyst Paolo Sala Associate Director +39 02 87 90 87 292 Committee Chairperson Federica Fabrizi Senior Director +39 02 87 90 87 232 Media Relations: Christian Giesen, Frankfurt am Main, Tel: +49 69 768076 232, Email: christian.giesen@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, 'Covered Bonds Rating Criteria', dated 10 March 2014, 'Counterparty Criteria for Structured Finance and Covered Bonds', dated 14 May 2014, 'Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum', dated 14 May 2014, 'Covered Bond Rating Criteria - Mortgage Liquidity and Refinance Stress Addendum' dated 4 February 2014, 'EMEA Residential Mortgage Loss Criteria', dated 28 May 2014, 'EMEA RMBS Master Rating Criteria', dated 28 May 2013, 'Criteria Addendum: Italy' dated 5 June 2014, 'Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds' dated 23 January 2014 and 'Criteria for Rating Granular Corporate Balance-Sheet Securitisations (SME CLOs)' dated 5 March 2014 are available at www.fitchratings.com. Applicable Criteria and Related Research: Covered Bonds Rating Criteria - Mortgage Liquidity and Refinance Stress Addendum here EMEA Residential Mortgage Loss Criteria here EMEA RMBS Master Rating Criteria here Criteria Addendum: Italy - Residential Mortgage Loss and Cash Flow Assumptions here Covered Bonds Rating Criteria here Counterparty Criteria for Structured Finance and Covered Bonds here Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum here Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds here Criteria for Rating Granular Corporate Balance-Sheet Securitisations (SME CLOs) here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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