Italian mortgage lender Cariplo, a wholly owned subsidiary of Banca Intesa, last week launched what has been described as the first true prime mortgage-backed deal to come out of Italy. Called Intesa Sec., the E513.1 million ($464 million) transaction securitizes a pool of over 20,000 residential mortgages originated by Cariplo in Italy.

Credit Agricole Indosuez and Caboto Holdings acted as co-arrangers on the deal, with Morgan Stanley Dean Witter brought in as joint lead manager alongside Credit Agricole.

The total value of the underlying pool is just under the total value of the bonds issued, and the average loan-to-value of the mortgages is 46.5%. The majority of the loans (75%) are located in the north of Italy, a factor generally regarded as favorable as the economy and default rates are stronger than in other parts of the country.

Credit enhancement for the senior notes comes from subordination on the junior notes as well as any excess spread accrued. In the case of an early trigger event, a reserve fund provides further protection, equal to the value of the unrated E8.125 million C tranche.

The transaction was split into three floating rate tranches. Fitch gave an AAA rating to both the E270.5 million A1 tranche and the E205 million A2 notes, as well as an A rating to the E29.5 million junior B tranche.

The A1 notes carry average lives of 2.2 years and priced at 18 basis points over six-month Euribor. The spread on the 5.6-year average life A2 tranche was 23 over, and the B tranche priced at 55 over and carried a 4.3-year average life.

A syndicate official at MSDW believed that investors were impressed by the performance of the underlying collateral. "The market is very strong right now, and this is the first true prime mortgage securitization out of Italy," he said. "I think people looked at the portfolio and thought that the collateral is six years old, and it's got a very low loan-to-value."

The official accepted that the spreads were tight, but believed investors were prepared to buy because of the pool quality. "It may be a tad on the expensive side, but there's nothing else out there in the market that's like it, so investors were looking to get some exposure," he continued. "We were very, very close to full subscription on our books and we got interest primarily from banks and a couple of funds. We had some Italians involved, some Benelux buyers, some German, some French and some Spanish, so there was pretty good variety."

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