Fiat is back in the market toting a second wave of auto-loan deals that add a new dimension to the capabilities available under Italian securitization law: German assets.

After establishing the appetite for auto-loan receivables in the Italian market with its 1.08 billion deal last year, the company took its latest 849 million transaction on the road last week.

Absolute Funding S.R.L. is the first transaction of Fiat's German captive finance company, Fiat Bank GmbH. While the deal is filed according to Italian securitization regulations, the receivables are composed of monetary obligations of German-based individuals and commercial obligors.

"The SPV has joint ownership, Fiat and Unicredit Banca Mobiliare (UBM), [which] have set up a fund that will purchase the receivables from the German bank - it's the first for Italian securitizations," said Marie-Jeanne Kerschkamp, senior analyst and vice president of the structured finance group at Moody's.

With little restrictions by way of German securitization regulations, the deal primarily relies on the country's civil code. "There are not as many regulations [and] from an SPV perspective it's clearly defined under Italian law," Kerschkamp said.

Worries about

segregation of funds

Much like its 1999 issue, the latest Fiat deal incorporates a 764.9 million tranche, triple-A-rated by both Moody's and Standard & Poor's. The high rating again reflects the credit enhancement provided by the class M notes which total 84.9 million and account for 10% of the deal.

It is further enhanced by the capture of excess spread through the principal deficiency ledger that records delinquent and defaulted receivables, explained Kerschkamp; and it also flaunts early amortization triggers that stop substitution and offers a tight eligibility and concentration criteria.

But under the Italian securitization law there were worries that the multi-purpose vehicle would not meet the multi-purpose criteria, which requires that assets remain separate and the segregation of funds in line. Because the structure involves the sale of German receivables to an Italian multi-purpose SPV, concerns arose of contamination and co-mingling of assets and cash flows.

However, the structure addresses these concerns through strict application of segregation of funds as prescribed through Italian regulations.

"Before entering into new transactions, the issuer has to submit a legal opinion to the note trustee provided by an international law firm," Kerschkamp said. "The opinion has to confirm that, by entering into a transaction, it is in compliance with the Italian securitization law and that the assets and liabilities of each transaction are fully segregated."

This requires that for every new transaction issued through the SPV the issuer certificate must clearly state: separate security exists for each transaction; limited recourse for all existing and the new note issuances is provided; all agreements relating to new transactions include non-petition language; segregation of the transaction accounts for accounting purpose; and no co-mingling of funds as separate bank accounts are used in each transaction.

German tax issues

While it may be a first for Italy, Germany has long been dodging the tax issue on true-sale securitizations, bringing to mind a number of deals that use Jersey, U.K.-based SPVs.

"Under German law, true-sale securitization is subject to tax liability that must be investigated on a case-by-case basis," adds Moody's Kerschkamp.

SPV activities are subject to a trade tax but because of the lack of clarity surrounding the tax, the potential negative impact it could have on a deal in the long run is not known. In Fiat's case, however, Moody's determined the AAA rating on the class A tranche based on its satisfaction that the structure had appropriately addressed the issue.

According to the rating agency, neither the Italian servicer nor the issuer is subject to the tax liability because neither has its legal seat in Germany.

Fiat Bank reports to Fidis, which is a wholly owned subsidiary of Fiat Auto and IVECO. Fidis directs and controls the risks associated with the vehicle financing of the Fiat group. "If Fiat Bank is no longer the German servicer under this transaction, Fiat Bank could repurchase the receivables," explained Kerschkamp.

Nonetheless, because the assets are subject to German law, if proceedings were to arise against the issuer in Germany "the application and provisions of the Italian securitization law to the issuer's assets" would be called into question.

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