OREANDA-NEWS. Fitch Ratings has revised the Outlook on two Italian mortgage covered bond programmes (Obbligazioni Bancarie Garantite, OBG) and affirmed the ratings, as follows:

Unione di Banche Italiane S.p.A (UBI, BBB/Negative/F3) OBG guaranteed by UBI Finance CB 2 S.r.l. (UBI CB 2) affirmed at 'BBB+'; Outlook revised to Negative from Stable

UniCredit S.p.A. (UC, BBB+/Negative/F2) OBG guaranteed by and UniCredit BpC Mortgage S.r.l. (UC Soft Bullet (UC SB)) affirmed at 'AA'; Outlook revised to Negative from Stable.

The rating actions follow the Outlook revision to Negative from Stable on the banks' Issuer Default Ratings (IDR), which have also been affirmed (see 'Fitch Revises UniCredit's Outlook to Negative; Affirms at 'BBB+'' and 'Fitch Revises UBI's Outlook to Negative; Affirms 'BBB'' dated 24 March 2016 available at www.fitchratings.com).

There is no rating impact on the 'AA+'/Stable rating of UC's conditional pass-through (CPT) OBG guaranteed by UniCredit OBG S.r.l., reflecting the cushion of five notches before a downgrade of UC's IDR would impact the OBG rating.

KEY RATING DRIVERS - UBI CB 2
The OBG rating is based on UBI's Long-term IDR of 'BBB', an unchanged IDR uplift and Discontinuity Cap (D-Cap) of 0 notches (full discontinuity risk) and the 100% contractual asset percentage (AP) that Fitch takes into account in its analysis. The Negative Outlook reflects that on UBI's IDR.

The programme has a limited rating uplift due to a lack of data provision: UBI does not deliver data for the purpose of the programme surveillance. Fitch has used publicly available information and its analysis is based on conservative asset assumptions and an estimation of nominal recoveries that is in line with a one-notch recovery uplift.

The unchanged D-Cap of 0 notches is driven by Fitch's assessment of full discontinuity risk on the liquidity gap and systemic risk component.

KEY RATING DRIVERS - UC SB
The OBG rating is based on UC's Long-term IDR of 'BBB+', an unchanged IDR uplift of 1 notch, an unchanged D-Cap of 2 notches (high discontinuity risk) and the 72.1% AP that Fitch takes into account in its analysis, which provides more protection than the unchanged 80.5% 'AA' breakeven AP (equivalent to 24.2% breakeven over-collateralisation). The Negative Outlook mirrors that on UC's IDR.

The 72.1% nominal AP allows a two-notch uplift above the 'A+' tested rating on a probability of default basis, which is commensurate with recoveries given default of at least 91%. Fitch takes into account the highest AP of the preceding 12 months (72.1% as of end-June 2015) as UC's Short-term IDR is 'F2' and the programme is actively managed by the issuer.

The unchanged IDR uplift of 1 notch reflects the bail-in exemption for fully collateralised OBG and the domestically systemic importance of the issuer such that Fitch believes resolution methods other than liquidation are more likely to preserve important banking operations, including covered bonds. The unchanged D-Cap of 2 notches is driven by Fitch's high discontinuity risk assessment on the liquidity gap and systemic risk component.

RATING SENSITIVITIES - Unione di Banche Italiane S.p.A. (UBI) OBG
The 'BBB+' rating of the OBG issued by UBI and guaranteed by UBI Finance CB 2 S.r.l. would be vulnerable to downgrade if the UBI's Issuer Default Rating (IDR) is downgraded by one or more notches to 'BBB-' or below.

RATING SENSITIVITIES - UniCredit S.p.A. (UC) Soft Bullet
The 'AA' rating would be vulnerable to downgrade if any of the following occurs: (i) UC's IDR is downgraded by one or more notches to 'BBB' or below; or (ii) the number of notches represented by the IDR uplift and the Discontinuity Cap is reduced to 2 or lower; or (iii) the asset percentage (AP) that
Fitch considers in its analysis increases above the 80.5% 'AA' breakeven AP.

In addition, if the AP that Fitch considers in its analysis increases to the contractual limit of 93% the OBG would likely be downgraded to 'A'.

The Fitch breakeven AP for the covered bond rating will be affected, among 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.