Still on its record setting pace, the Italian securitization market continues to pave the way for innovative securitizations. According to Moody's Investors Service, Italian ABS volume is set to reach 30 billion this year. The latest flavor: Treasury securitizations.

On the cusp of last month's lottery securitization, a pending real estate deal is expected to topple the 6 billion mark. The maximum limit decreed by the government summarizes the presumed value of its property holdings and lies in the vicinity of 20 billion, said one analyst. So far, details on the deal are scarce, and it has reportedly encountered several delays. Bids were expected to be taken sometime late last week, but sources said that would be unlikely; as the lotto securitization had only progressed to the selection process, it might be difficult for the banks to be in two places at once.

If the real-estate securitization follows the pace set by the lotto deal, market participants can expect to wait a month before any decisions are finalized, said one banker at Morgan Stanley. To be sure, the lotto proceedings have been underway since the first week of September and have just recently reached the selection point.

"The lottery short-list was dropped today and we can expect them to communicate choices of that Thursday and Friday," he said.

So far, the only indication of what will be included in the real-estate portfolio is limited to the sizable government holdings, but there is no word yet on what properties are intended to be included, and whether those assets will be worth securitizing. From a ratings perspective, the question is the value of the assets. Like most pioneering securitizations, there is no cookie-cutter approach to how to analyze the deal, explained one source at Moody's who reviewed the INPS transaction, which was the government's securitization of social security receivables.

It is still unclear how the government will overcome the necessary legislative hurdles for the transaction, but it's expected they'll follow along the same route taken for countless other deals, said one spokesperson at S&P. "The Italian government quite neatly flanks the Gordian Knot by passing a law that says this will work because this law says so It's tailor made," he said. "One would assume that the real estate deal will follow the same path."

Italian NPLs still roaring

With the accounting incentive window for Non-Performing Loans closing, market analysts suspect there will be a considerable slowdown of deals but not a disappearance of the asset class. At press time, Morgan Stanley was due out with a 1 billion deal that sources say will not benefit from the accounting clause that allows banks to securitize their NPLs and spread losses over a five-year period. Under current conditions, banks securitizing NPL portfolios will have to declare the losses immediately.

With the current economic uncertainty, it's inevitable that more banks will continue securitizing the asset. "We will continue to see bad loans increase in Europe," said a spokesman at Morgan Stanley. Already in the market is a 338 million NPL securitization for Banca Antonia Popolare Veneta, led by ABN AMRO. The deal is expected to price beginning next week.

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