Italy looks set this year to join the ranks of securitizing nations in the European Community, as analysts expect the number of Italian deals completed this year to more than triple last year's total.
Up to 30 Italian securitizations are expected this year, totaling in euros from e8 billion to e12 billion ($7.6 billion to $11.5 billion). That will be a far leap from last years' total of seven deals, which came to e6.5 billion ($6.2 billion).
Italy caught the international financial market's attention last year with the $34.8 billion Telecom Italia SpA/Olivetti SpA merger, one of the most audacious hostile takeovers in recent history, and analysts said the country is now in a modern financial mindset and burning to enter the capital markets. Recent regulatory changes have laid the groundwork, and Italian banks look ready to use their new tools.
Expect to see an increase in asset-backed securitizations, especially those of non-performing loans, of which Italian banks are stuffed to the rafters. But analysts said this also could be the debut year for a variety of new deal categories, such as commercial mortgages, asset-backed commercial paper and project finance loan securitizations.
The key to all this activity was Italy's long-awaited securitization law, which passed in April 1999. Before that law was enacted, securitization was tangled up in legal and tax issues, and had little appeal to Italian banks and other issuers.
"Italy's late enactment of its securitization law compared to other European countries did not mean that potential issuers had not expressed interest in it," said Alain Debuysscher, assistant vice president at Moody's Investors Service. "Some, particularly banks and financial institutions, were simply waiting for a workable legal framework to be in place."
Italian issuers wasted no time after the law hit the books. Late 1999 already saw a quickening of the securitization pace, as five of the year's seven deals closed during the last two months of the year. Both the government and the banking sector look to be readying a roster of new deals for this year, he said.
The Italian Social Security's e4.65 billion ($4.4 billion) securitization last year should provide the framework for more government-sponsored offerings. The Italian government is expected to raise up to e8 billion via asset-backed issuance in the next three years, analysts said.
For banks, there is an immediate benefit to securitizing, as there is a current tax break designed to encourage banks to clear their balance sheets of bad loans. The tax breaks, which expire in April 2001, enable banks to amortize the deduction of non-performing loan related losses over five years.
However, investors are expressing concern about some Italian bank securitizations. Because most Italian banks are small, local-based entities, a deal that contained non-performing loans would have great geographic concentration and would be dependent on the vagaries of the local economy, analysts said. One solution may be for banks to offer joint securitizations, but the feasibility of that scenario is still an open question.
Other concerns about Italian deals include spotty origination and performance data on securitized loans and the rather lackadaisical approach to credit quality that many Italian issuers have had in the past.
But such qualms are not going to stop Italian securitization from booming, sources said. Look for mortgage deals, collateralized bond and loan obligations, auto loans, credit derivatives and other structures to make further inroads on the Italian peninsula. Such deals already had a solid debut year in 1999. For example, Banca Commerciale Italiana offered the first Italian credit derivatives deal, a successful e240 million ($230 million) transaction, while Banca di Roma pioneered the use of the collateralized bond obligation structure with its e270 million ($260 million) deal in November.