Ratings Affirmed On UniCredit SpA#s Italian Mortgage Covered Bonds Following Outlook Stable

Covered bond programs in Italy are subject to the European Union's Bank Recovery and Resolution Directive (BRRD). Our assessment of the systemic importance for mortgage programs in Italy is strong, which, according to our covered bonds criteria, places the reference rating level (RRL) two notches above the adjusted issuer credit rating (ICR; see "Assessments For Jurisdictional Support According To Our Covered Bonds Criteria," published on July 20, 2016 and "Covered Bonds Criteria," published on Dec. 9, 2014). This uplift recognizes that resolution regimes, such as the BRRD, increase the probability that an issuer could service its covered bonds, even following a default on its senior unsecured obligations. We consider this an internal form of support because the bail-in of some of the issuer's creditors does not require direct support from the government.

Under our covered bonds criteria, a program can receive up to two notches of jurisdictional uplift when the jurisdictional support is assessed as strong. However, no jurisdictional uplift is currently possible due to the limit represented by the sovereign credit ratings on Italy (unsolicited; BBB-/Stable/A-3).

The available overcollateralization exceeds the target credit enhancement and the program benefits from committed overcollateralization and available liquidity. As a result, the potential collateral-based uplift is four notches.

However, according to our structured finance ratings above the sovereign criteria, we can rate this program up to four notches higher than our long-term rating on Italy (see "Criteria - Structured Finance - General: Ratings Above The Sovereign - Structured Finance: Methodology And Assumptions,"published on Aug. 8, 2016).

However, the resolution regime analysis section of these criteria is under review (see "Request For Comment: Methodology For Incorporating The Effect Of Resolution Regimes Into Covered Bond Ratings," and "Request for Comment: Methodology For Assigning Financial Institution Resolution Counterparty Ratings," both published on Jan. 31, 2017).

As a result of this review, we may amend certain paragraphs of our covered bonds criteria. This change may affect the ratings on the outstanding covered bonds issued under this covered bond program. Until this time, we will continue to rate and surveil these covered bonds using our existing criteria (see "Related Criteria").