Innovation has become a staple for the Italian securitization market, almost de rigueur. This is not due to some exploited loophole, but rather a result of pro-securitization legislative regime, which might explain why Italy is rapidly taking the market lead. According to Commerzbank, the latest Italian innovation - the country's first whole business deal - raised over the equivalent of $2.5 billion.

At first glance, the Romulus Finance whole business securitization of Aeroporti di Roma (ADR) may look similar to whole business transactions that have grown out of the seasoned U.K. -regulated sector - and that's precisely the allure. "The greatest accomplishment of the ADR transaction is that it showed that a technique that the industry recognized in the U.K. could be applied to Italy," said David Bickerton at Clifford Chance, the legal advisor on the deal.

The structures are similar in that the obligations of a borrower with a stable, regulated cash flow under a secured loan agreement are the assets being securitized. In the Italian deal, however, the secured loan must already be in existence "The securitization law 130 enacted in 1999 deals with transactions based on receivables and not with whole business transactions such as this," said Stefano Giacomino at Barclays Capital, a managing bank on the deal. "What we did was take an existing loan and restate it in a market-friendly way, which enabled us to securitize the cash flow stream from the restated loan."

From a legal perspective, Bank of Italy's approval of Italian whole business securitizations is contingent on existing assets, which incorporates the added benefit of minimizing the involvement of the ultimate borrower, said Bickerton.

The securitization included four triple-A tranches backed by an Ambac financial guaranty. According to a presale report from Moody's Investors Service, the purpose of this transaction is to improve ADR's financial flexibility by replacing the terms of the existing bank loan - which reflects an amortizing, project-finance style bank-loan facility - with a series of bullet bonds issued through Romulus as well as some shorter-term bank debt.

The terms of the existing bank loan to be acquired by Romulus will be amended by an agreement between Romulus and ADR and will form the ADR Loans. The terms of the ADR Loans will substantially match the terms of the note, with Romulus acting as a pass-through. The holder of the note and Ambac will have a full security interest over Romulus and will be able to direct and control its business so that they can exercise control over the ADR Loans.

According to Moody's, the airport is also in a reasonably liquid position thanks to its positive operating cash flow and debt structural enhancements that would provide protection should a negative scenario arise during the life of the transaction. The company is a concession-based business; in the event that it were to become insolvent, cash flows would stop. However, the Ambac wrap functions with mechanisms that would enable the financing to keep in line, thereby preventing the disastrous side effects of insolvency.

"Although the deal is similar to U.K. water deals, we had to tailor-make the approach because of the intrinsic differences between the nature of the businesses and the operating cash flows," said Giacomino. "We worked within the Italian legal framework, and it was a challenge to involve monoline insurance companies that were not so familiar with this framework. The education process was required in order to get them comfortable with the Italian institutional environment and with a legal system based on codes rather than on common law practices."

The key was involving the monoline from the beginning of the transaction and marketing process. This transaction, paired with the recent real-estate deal Imser 60, means that monolines are sure to have a better taste of how the securitization framework functions in Italy. "It shows them that Italy is promising and that there is plenty of potential for utility-style or concession-based business in Italy," said Giacomino. "Talking from a bank perspective, it has been very important to put together a deal where corporate securitization and infrastructure finance expertise have worked in such an effective way."

For Clifford Chance, this deal gave its new Italian team, led by Franco Grilli and Suzanne Tinozzi, the opportunity to cement a leading position in the Italian market, Bickerton said.

Copyright 2003 Thomson Media Inc. All Rights Reserved.

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