Germany provided a top up to its Postal Pension deal in a second round of financing that is expected to sell around 7.5 billion ($9.57 billion) of pension obligations. Although the deal will be treated as a debt transfer by national regulators, European Union regulators are taking a different view.

Global Postal Pensions Securitization PLC is the second securitization of state-owned pension liabilities due to be paid by successor companies of Deutsche Bundespost to retired civil servants (and their survivors) previously employed by the firm. Similar to the first deal issued last June, the notes are not backed by an explicit guaranty from the Federal Republic of Germany, but rely on implicit state support. The ratings on the notes are credit-linked to those of the Federal Republic of Germany

Michael Hoelter, an associate director at Fitch Ratings, said that the mismatched points of view between national and E.U. level regulators are down to how each government body is approaching the deal. "The Federal Office of Statistics appeared not to look at it from a risk transfer point of view, which could not be achieved in the structure," he explained. "It seems what that they were looking at [in order to treat the deals as debt transfer] is whether the government was directly issuing the debt and, in these deals, they are not." Eurostat, the E.U.'s statistical office, however, requires that the structure achieves risk transfer in order to receive debt transfer treatment.

Hoelter said that given the national recognition of the transaction - where it is viewed to count against the government deficit - it could allow the government to meet national limitation on the use of new debt issued by the Federal Republic. Germany has a constitutional rule that allows for up to 50% of new debt issuance proceeds to be used to finance ongoing expenses, this transaction frees increase a certain budget amount and fund the ongoing payment obligation of the state against pensioners, Hoelter explained.

But the German government may be dissuaded from perusing an aggressive securitization program because of the negative press it received last year following its inaugural pension deal. Eurostat stated then that it would be reworking its rules and warned that governments should not rely heavily on securitization as a means to deal with government deficits. "The work on the [revised] rules is still under way, and it is too early to say when this work will in fact be finalized," said Tim Allen, a spokesperson for Eurostat.

Nonetheless, the statistical body has already moved forward with individual decisions that have already affected certain deals. Among those affected was Germany's inaugural postal pension deal which was driven back on balance sheet as a result of the ruling

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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