MEDIOBANCA S.P.A.
Fitch Ratings has affirmed
KEY RATING DRIVERS
The OBG's 'AA' rating is based on
The OBG are rated at their maximum achievable rating in line with
The covered bonds are rated six notches above the bank's Long-Term IDR of 'BBB'. This is out of a maximum achievable uplift of 10 notches, consisting of a resolution uplift of two notches, a payment continuity uplift (PCU) of six notches and a recovery uplift of two notches.
In its analysis, Fitch relies on the highest level of AP recorded in the past 12 months, 70.3% as of end-2022. This provides more protection than Fitch break-even AP for the rating, which is at 85.5%.
OC Protection
The revised 'AA' break-even AP of 85.5% (down from 88% previously) is equivalent to an OC of 16.9% and considers an asset-and-liability mismatch (ALM) loss of 14.4% (versus 11% previously) and an unchanged credit loss of 2.5% that reflects the stable cover pool composition.
The revision of ALM loss is driven by an increased share of fixed-rate loans as the net present value (NPV) of fixed-rate assets is below par in an increasing interest-rate scenario, which is the driving scenario for the rating. Fitch considers unhedged assets and liabilities in its cash flows analysis, as derivative contracts do not have counterparty downgrade provisions. The cover pool and the covered bonds are modelled based on their current interest rates: 100% of the OBG are fixed-rate whereas the assets comprise fixed-rate (62.3%), floating-rate (30.8%), floating-rate with cap (1.3%) and optional loans (5.6%).
The weighted average (WA) life of the assets is 12.8 years versus 4.2 years for the covered bonds. The WA life of the cover assets considers the amortisation profile of inflation-linked loans, calculated under Fitch's assumption of a rising-interest rate scenario and inflation being significantly lower than prevailing mortgage interest rates, which is Fitch's most stressful scenario for the loss related to this type of loans.
As of
Uplifts
The two-notch resolution uplift reflects that collateralised covered bonds in
The six-notch PCU reflects the principal liquidity protection provided by a 12-month maturity extension, as well as a dynamic reserve that covers three months of senior expenses and interest payments.
The recovery uplift for the programme is two notches as the 'A+' timely payment rating level of the OBG is in the investment-grade category and Fitch has not identified any material downside risk to recoveries given default. All cover assets and covered bonds are euro-denominated.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The covered bonds would be vulnerable to a downgrade if (i)
Fitch's break-even AP for the covered bond rating will be affected, among other factors, 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 break-even AP to maintain the covered bond rating cannot be assumed to remain stable over time.
Fitch maintains a neutral sector outlook for global covered bonds, despite a deteriorating asset performance outlook for many jurisdictions. It reflects the instrument's dual-recourse nature, liquidity protection mechanisms, ample OC cushion, and limits, such as cover assets eligibility criteria and contractual tests, which mitigate asset performance deterioration (for further details see 'Global Covered Bonds Outlook 2023').
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
CRITERIA VARIATION
Fitch varied from its Covered Bonds Rating Criteria to analyse inflation-linked loans. The instalment amount, which comprises interest and principal, resets every 12 months and is capped at the inflation rate at that point. Increases or decreases in interest rates may determine a slower or faster principal repayment. For inflation-linked loans originated before
In an increasing interest-rate scenario, which drives the break-even AP for the rating of this programme, the amortisation profile of inflation-linked loans is stressed with an inflation rate equal to half of the corresponding interest rate. In this scenario, Fitch has modelled the programme's cash flows assuming that the principal loss that materialises after the loans' maximum lengthened maturity is left unpaid.
In an increasing interest-rate scenario, the interest component of the instalment that exceeds the instalment amount is not paid, as the instalment amount is capped at the inflation rate. Fitch has deducted from the interest revenue the amounts that are assumed to be lost in a scenario whereby the interest component of the instalment amount is higher than the inflation rate.
The rating impact of applying this criteria variation is undetermined.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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