Italian bank Banca di Roma recently launched yet another securitization backed by non-performing loans. The E850 million ($812 million) transaction was called Trevi Finance No.2. It follows hot on the heels of other recent NPL issues, including CariChieti's E53 million Creso 1 deal (ASRI 4/10/2000 p6) and Banco di Sicilia's E380 million Island Finance transaction (ASRI 3/27/2000 p8).

ABN AMRO and BNP Paribas acted as joint lead managers for the deal, with Banco di Roma as co-manager. The deal, which parceled loans on commercial and residential properties with a book value of around E1.7 billion, was split into four tranches, of which only two were priced. The assets were originated by both Banca di Roma and its subsidiary Mediocredito di Roma

The E650 million 3.5-year average life A notes, rated Aa2 by Moody's Investors Service and AA by Standard & Poor's, Fitch IBCA and Duff & Phelps Credit Rating Co., priced at 110 basis points over six-month Euribor. The spread on the 5.4-year average life E200 million B notes, rated A3 by Moody's and A by Fitch and DCR, was 210 basis points over six-month Euribor.

Credit enhancement was provided by overcollateralization, subordinated C and D tranches and a E380 million back-up credit facility, E250 million of which is guaranteed by ABN Amro.

Marco Grimaldi, ABN Amro's lead banker on the transaction, admitted that the pricing was underpinned by a desire to clear the books quickly. "The spreads were very much market driven as we wanted the books to clear at launch," he said. "The majority of the bonds were sold to banks and insurance companies in Ireland, Italy, Germany and the Benelux countries. There was also interest elsewhere, including Spain and Japan."

Grimaldi attributes the sudden burst of NPL deals to the new Italian securitization law. "It has definitely made it a lot easier to do these deals," he said. "Banks are incentivized to take these loans off the balance sheet and there will more of these to come."

Amongst the incentives in question are tax and accounting breaks which mean that for the two years after the securitization law was enacted in April 1999 banks are able to account for the losses resulting from selling loans to a securitization SPV over a five year period, rather than take the punishment in one go. They only have one year to go, which given the amount of bad loans in the Italian banking system should mean a busy time for securitization specialists

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