OREANDA-NEWS. Fitch Ratings has affirmed Unione di Banche Italiane Scpa - UBI Banca's (UBI, BBB/Stable/F3, Viability Rating (VR): bbb) EUR11.5bn mortgage covered bond programme (Obbligazioni Bancarie Garantite, OBG) at 'A' and removed from Rating Watch Negative (RWN). The OBG is guaranteed by UBI Finance S.r.l. A Stable Outlook has been assigned, mirroring that of UBI's Issuer Default Rating (IDR).

The rating action follows UBI's decision to apply in its next investor report an asset percentage (AP) not higher than Fitch's 'A' breakeven AP.

KEY RATING DRIVERS

The 'A' rating is based on UBI's IDR of 'BBB', an unchanged IDR uplift of 0, an unchanged Discontinuity Cap (D-Cap) of 1 (very high risk) and the 84.5% AP that Fitch takes into account in its analysis, which is in line with the unchanged 'A' breakeven AP.

Following Fitch's rating action of 8 April 2015, when the agency downgraded the OBG's rating to 'A' and placed it on RWN (see "Fitch Takes Various Actions on 3 Italian OBG Programmes" dated 8 April 2015 at www.fitchratings.com), UBI has decided to undertake a 84.5% AP in its next investor report, which will be published on 20 of May 2015. As communicated by the bank, this level of AP will be used to calculate the nominal value test, the asset coverage test, the net present value test and the interest cover test.

This level of AP is adequate to sustain timely payments at 'BBB+', the tested rating on a probability of default (PD) basis, and to reach 91% recoveries on the covered bonds assumed to be in default in a 'A' scenario, allowing a two-notch uplift for recoveries above the tested rating on a PD basis.

The components of the 'A' breakeven AP of 84.5% (equivalent to 18.3% overcollateralisation) are unchanged: 11.1% asset disposal loss, followed by 8.8% credit loss component and 1.5% cash flow valuation.

RATING SENSITIVITIES

The 'A' rating would be vulnerable to downgrade if any of the following occurs: (i) the issuer's IDR is downgraded by one or more notches to 'BBB-' or below; (ii) the number of notches represented by the IDR uplift and D-Cap is reduced to zero; or (iii) the AP that Fitch considers in its analysis increases above Fitch's 'A' breakeven level of 84.5%.

If the AP that the agency gives credit to rises to the contractual limit of 93% the covered bond rating would likely be downgraded to 'BBB+'.

Fitch's 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.