The confusion surrounding the Lit465 billion ($231 million) securitization issued by Italian media group Cecchi Gori shows no sign of clearing up. It may even be getting worse.

The transaction, arranged by Merrill Lynch and called Finance for an Italian Library of Movies (Films), was launched in February 1998 (ASRI 3/23/1998 p. 11). Since November last year, however, things have not been running smoothly, with two missed or partial rental payments (ASRI 12/13/1999 p.1) and a fall in the level of overcollateralization.

Following the missed payments, the deal was downgraded by Fitch IBCA from A-minus to BBB-minus and put on ratings watch by Duff & Phelps Credit Rating Co., which had rated it A (ASRI 1/31/2000 p.2).

The latest confusion surrounds the potential termination event that arose when the annual evaluation of the portfolio in February established that its value had fallen below the minimum over-collateralization ratio of 1.56%.

When the calculation was issued, rating agency and other sources said that Mediafiction (the Cecchi Gori subsidiary that manages the portfolio) had 35 days to add films to the portfolio or provide a letter of credit in order to take the overcollateralization back above 1.56% (ASRI 2/28/2000 p.2).

In early March, rating agency analysts told the ASRI that the 35-day period would run out in the following few days, but now no one seems so sure.

"There is discussion going on as to when the 35-day time period commenced and when it expires, even whether that period has even started," said Kimberly Slawek, managing director at Fitch in London. "As to how Cecchi Gori will shore up the film library, that is still being discussed."

Fitch are due to meet Cecchi Gori soon to see whether any new information has come to light. However, the agency does not anticipate a further downgrade.

"We have downgraded the deal already and we're not expecting to change that rating in the near future," Slawek explained. "We believe it will still be a triple B-minus unless something else happens."

DCR has yet to downgrade the deal, citing the problem of getting sufficient information from the originators, though it remains on ratings watch. "The situation has been under constant review," said the agency's Rob Marshall. "Some information has become available but at this stage we feel it's not quite sufficient to take action."

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