Fiat priced its 850 million deal last week, Absolute Funding S.R.L., the first transaction of Fiat's German captive finance company, Fiat Bank GmbH. Deutsche Bank, Societe General and UniCredit Banca Mobiliare managed the transaction.
"The deal touches on both Italian and German regulations," said Muri Rhee head of the European securitization syndicate and trading at Deutsche Bank. "From a securitization framework it is a groundbreaking transaction in that assets originated in Germany are securitized in an Italian securitization vehicle.
"Other issuers with assets originated across Europe may use similar securitization technology to issue larger liquid pan-European transactions in the near future. It follows Italian regulations; to the extent that there are losses and defaults it would be addressed by German law."
To be sure the deal totes a German originator; but the issuer, seller and servicer of the receivables are simultaneously both German and Italian. Fidis S.p.A., which is a wholly owned subsidiary of Fiat Auto and IVECO, is the Italian servicer. Fidis directs and controls the risks associated with the vehicle financing of the Fiat group. Fiat Bank GmbH acts as the subservicer, performing tasks delegated by Fidis.
Despite the complicated exposure, investors did not shy away from the challenge. The majority of buyers doubt the portfolio assets will find themselves subject to the German regulatory scope of the deal, since it is opinioned that there is little chance the auto loan receivables will ever default, explained Deutsche's Rhee.
"Investors assessed the Absolute deal in much the same way they would examine other ABS, by examining the credit quality of the collateral, originator/servicer quality, and the integrity of the structure. The pricing and the subsequent trading indicate investors' comfort with the structure and the underlying quality," Rhee said. At +26 basis points, it came well within its original price talk of +25 to +26 basis points. Absolute Funding priced two basis points within Fiat's summer launch of unsecured bonds, SIAT.
Neither the Italian servicer nor the issuer is subject to the tax liability dictated by the German securitization law because neither has its legal seat in Germany. Fidis directs and controls the risks associated with the vehicle financing of the Fiat group.
Still, tax worries travelled well beyond German tax liabilities. Italian withholding tax regulations curtail which countries are allowed to participate in Italian securitizations, which means that a number of investors in certain countries that would otherwise be interested are in fact not able to participate.
As a consequence Auto ABS 2001-1, the 950 million Peugeot deal issued earlier this year with a similar structure to Absolute Funding, priced four bps tighter - a price largely attributed to the wider investor audience the French deal allowed to participate. "The Peugeot deal appealed to a broader investor group in Europe," said Deutsche's Rhee. "Currently, securitizations under [Italian] Law 130 accompanies withholding tax consequences for certain investors in Europe, which prohibits some investors from participating.
"However, investors are watching the development of the recent decree which may allow for this to change in the future," Rhee noted.