Greece announced earlier this month that it will no longer move ahead with a 1.5 billion ($1.7 billion) securitization deal slated for next year intended to reduce its budget deficit for 2006. However, the government plans to move ahead with its planned 1.5 billion deal this year with the hopes that Eurostat will give the thumbs-up to count against this year's deficit.

A decision by Eurostat on the securitization plan announced by the Greek authorities is scheduled to take place in the coming weeks. EU economic affairs commissioner Joaquin Almunia said in a press release last week that the EU had taken into account the impact of the securitization measures announced by the Greek government in its 2005 forecast, but with the caveat that should Eurostat rule that this one-off transaction not be eligible, it would not consider it when assessing the excessive deficit procedure in 2005.

"Eurostat is treating the Greek case and has sent a request for further information to Greece on 11 November 2005," said Eurostat spokesman Tim Allen. "We are considering the securitization rules in general and will be seeking a Committee on Monetary, Financial and Balance of Payments consultation on this issue in the next few weeks."

During an announcement that Greece had now submitted a report on its financial position to the EU, Economic and Finance Minister George Alogoskoufis said that the sum of the securitization deal would not be included in the official budget for the year until the government completes talks in Brussels. If approved, the deal would reduce the deficit from 4.40% to 3.60% of GDP this year, closing the gap caused by a tax revenue shortfall.

Alogoskoufis added that the public sector deficit has gone down from 6.60% of GNP in last year to 3.60% in 2005 and is expected to be further reduced to 2.60% next year. Alogoskoufis said that in the four-point deficit reduction between last year and next, 3.50 points were due to permanent structural measures.

Greece has also proposed amendments to its 740 million Hellenic Securitization issued in November 2000. The transaction securitized future revenues to the Greek state from the public sector financial institution Consignment Deposits and Loans Fund, which included 445 million senior A1 notes that currently amortized to 187.6 million and A2 notes which remain fully outstanding at 295 million.

According to Deutsche Bank Securities analysts, the proposed amendment is to make available to the Hellenic Republic income in excess of 70% of Consignment Deposits's profit, and securitization reserves. Should 70% of its profits be insufficient to meet the scheduled debt service, the issuer will have recourse to any dividends in excess of 70% and any Consignment Deposits's reserves that have not been distributed to the Greek state as well as, ultimately, the benefit of an unconditional and irrevocable payment undertaking of the Hellenic Republic to make up any debt service shortfall.

"An extraordinary meeting of the note holders is scheduled for December 8. The bond ratings were originally based on the sovereign rating given the payment [guaranty] and we would expect the same should the proposed amendments be incorporated," noted Deutsche Bank analysts. Using 2004 cashflows to illustrate the effect of these amendments - we note that 70% of Consignment Deposits's profit would have amounted to 115 million, versus debt service of 100 million last year."

(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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