After a notable silence, Greece is back in the market with a e100 million transaction. While the underlying assets veer from past public-sector assets, the sovereign has stepped in as it has in past transactions to lend its support.

The New Economy Development Fund (TANEO) transaction is a fund of funds designed to support the development of new technology. The collateral backing the notes will consist of equity investments in venture capital funds that invest in small- and medium-sized companies from new-economy sectors. The issuer is incorporated by the Greek sovereign, according to market analysts, to invest as a minority shareholder in these venture capital funds.

"The difference between this and other structures we have rated in the past is that here the issuer is a Limited Liability Company and not an SPV, but it still involves state aid that the sovereign received permission from Eurostat to provide," said one analyst at Fitch Ratings. "But past public-sector securitizations that we rated included government undertakings and not the explicit guarantee we see in this deal."

Both, however, are viewed in similar ways where ratings are concerned. The credit rating assigned to TANEO is based on the single-A foreign currency rating of the Hellenic Republic, and any change in this sovereign rating would result in a corresponding ratings change to the notes.

"The underlying assets and the transaction structure without a guarantee is similar to collateralized fund obligations, but because of the guarantee we are not looking at the underlying asset," said one analyst at Standard & Poor's. "When it comes to payment of interest we rely on the guarantee." Because TANEO is set up to make venture capital investments, as a stand-alone credit it's likely that these investments, when made, would be speculative in nature, said analysts at Fitch. The agency had also not considered the value of the TANEO assets or its corporate creditworthiness in rating the notes.

How the guarantee works

From a ratings perspective the structure is straightforward, analysts said. Readers might recall that the statistical office of the European Committee, Eurostat, clamped down last year with regulations limiting certain public-asset securitization structures to be counted as debt and not qualify as off-balance sheet-transactions. The regulations stipulated that transactions benefiting from a government guarantee should be treated as government debt, and because all of the Greek deals carried such a guarantee, the sovereign debt had to be revised to include those securitizations. They also dampened the Sovereign's enthusiasm to participate in future securitizations.

According to Fitch, the guarantee provided in the TANEO deal is governed under English law and deemed irrevocable and unconditional, but there still remains the minimal risk that the European Commission might at some point dispute the very existence of the guarantee.

Essentially, the guarantee functions as state aid and is subject to some limitations set by the EC. The EC determines the eligibility of state aid based on the following: the business purpose of TANEO is to make progress towards alleviating market failure by capital investment within the new technology sector; the state aid is essential for TANEO functions; and the aid provided is minimized to EC standards.

"It is possible that the EC decision could be overturned at some future time and the guarantee deemed to constitute unlawful state aid, potentially interfering with the [Hellenic Republic's] ability to honor its obligations," said analysts. Nonetheless, this risk is considered minimal; in the likelihood that EC should move forward with such a decision, the structure incorporates sufficient mitigating factors that address this risk.

This re-entrance of Greece into the securitization market is still, however, a far cry from the explosion of Greek securitizations that some sources expect once legislation facilitating private sector deals is in place.

To date, the Greek market has been limited to public-sector deals based on current legislation regarding securitization that only works in favor of such structures. The government has been working away at chipping away the edges of current legislative difficulties, and the amended legislation in favor of private-sector transactions is expected to pass through Greek Parliament shortly.

If legislation changes move at the expected pace this year, market sources indicated that European securitizations could see a Greek private sector deal emerge by 2004.

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