UBI Banca Group

transferred. Each of these swaps has an initial notional value equal to the value of the portfolios
transferred to UBI Finance by each originator. These notional amounts are then adjusted monthly on
the basis of the contraction of the portfolio and increases due to the addition of new mortgages. The
duration of the swaps are related to the maturities of the mortgages in each portfolio transferred.
Since the individual originator banks are not assigned ratings themselves and as a consequence
would not comply as swap counterparties with the criteria set by the rating agencies to rate the
programme, UBI Banca backs the payments between the originator banks and UBI Finance by
signing a guarantee.
The swap contracts involve the monthly flow back to the originator banks of the interest received on
the loans present in each portfolio (net of the expenses of the special purpose entity and of provisions
in its accounts as indicated in the chain of payments) against the payment of a sum equal to the
notional return indicated at the Euribor rate plus a spread.
F). Liability Swaps. A liability swap contract is entered into between UBI Banca and UBI Finance for
each fixed rate issue. These are designed to protect against interest rate risk, which might affect the
cash flows received from the special purpose entity (including those from the asset swaps) and the
amounts due from the special purpose entity to investors (fixed rate coupons on the covered bonds)
in the event of default by UBI Banca.
The structure of the liability swaps only requires the exchange of cash flows between UBI Banca and
the special purpose entity in the event of default by UBI Banca or alternatively when UBI Banca
assigns a swap contract to another eligible counterparty both the asset swap and the liability swap
are structured to comply with all the conditions set by the rating agencies and they incorporate all
the standard provisions set by the market for a downgrade.
G). Current accounts. The operation involves a complex system of current accounts to pay and receive
the cash flows involved in the operation. A series of accounts were opened in the name of the special
purpose entity for each originator bank as follows:
• Collection Accounts (with UBI Banca S.c.p.a) linked to each originator bank into which sums
received are paid consisting of interest and principal on the portfolios of each originator, and,
where applicable, other assets transferred to the special purpose entity under the programme
(e.g. eligible assets and top-up assets);
• Interest Account with Bank of New York Mellon, London Branch (until November 2011 with
UBI Banca International Luxembourg) linked to each originator bank into which all interest
paid into the collections accounts will be paid on a daily basis and also all amounts paid to
the special purpose entity by the counterparties of the swap contracts.
• Principal Account with Bank of New York Mellon, London Branch (until November 2011 with
UBI Banca International Luxembourg) linked to each originator bank into which all the
principal repayment amounts paid into the collection account will be paid on a daily basis;
• a Reserve Fund Account with Bank of New York Mellon, London Branch (until November 2011
with UBI Banca International Luxembourg) into which interest accruing on the covered bonds
is paid monthly in order to guarantee the payment of current coupons;
• an Expense Account, into which the amounts required to meet the expenses of the special
purposes entity will be paid, drawn from interest accounts, in proportion to the quota of
participation in the programme of each originator bank.
Effectiveness tests
Effectiveness tests are performed monthly on the whole cover pool and separately on the portfolios
transferred by each originator, in order to determine the financial integrity of each bank’s portfolio.
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