The E4.5 billion ($4.64 billion) securitization of delinquent pension contributions owed to the Italian state

pensions agency Istituto Nazionale della Previdenza Sociale (INPS), which was scheduled to launch as the ASRI went to press, will be just the first in a series of deals backed by the same assets, Treasury under-secretary Roberto Pinza said.

Over the next three years, the Treasury hopes to launch several deals worth at least another E8 billion, Pinza said, speaking at a conference in Milan. The Treasury is also likely to ask bankers to arrange a similar deal for Inail, the state insurance body.

The INPS transaction is being underwritten by Merrill Lynch, BNP Paribas and Caboto. It is divided into three equally sized triple-A tranches, each worth E1.5 billion, the first two are soft bullets expected to mature in January 2001 and January 2002, respectively, and the third is a two-and-a-half year pass-through piece.

The pool of assets that back the deal total nearly E25 billion, including interest and penalty payments.

At press time, an official at Cabato said the deal was imminent. "We think there will be a delay in the launch until Wednesday [24th November] while we wait for the preliminary rating letters from the four major international rating agencies," he said. "Wednesday is the last possible day which would allow us to respect the commitment for the settlement of the operation on November 30 as originally planned."

The pricing will be referenced to six-month Euribor. Rumors suggested tight pricings of around Euribor minus three to Euribor plus one for the first two pieces and Euribor plus the mid to high teens for the longer piece. "That is very roughly in the ball park," said one source close to the deal.

Bank sales forces will be attempting to convince investors that the deal should not price as a traditional securitization if it does it will price considerably higher but should be viewed as a quasi-public sector deal, relying on the fact that the Italian government could not afford for it to go wrong, particularly as they hope that it will be the first in a series.

"This is a quasi-sovereign deal, not a typical securitization," said one expert close to the deal. "The receiveables have to be enforced on a statutory basis and without the legal framework and support from the government they could not collect much. So the performance is related to political will."

Even so, the expert added, the sale will not be easy if for no other reason than the timing means that many investors will have closed their books for the year.

The sales task will be made slightly easier thanks to the fact that the paper will trade on the "Telematico" wholesale electronic platform, previously known for specializing in Italian and German government bonds. It will become the first asset-backed deal to trade on the exchange in an effort to ensure secondary market liquidity.

The deal will also feature a market making undertaking from the underwriters, commiting them to quote tight bid-offer spreads over the life of the deal.

"Because of the size of the bonds, and because of the way the deals are being structured, the issuer asked all of the bookrunners to keep some market-making obligation for a certain period of time," said Gianluca Garbi, chief executive officer of MTS, the company that operates Telematico. "That will basically transform the security from a one-off issuance, to a security that is also liquid in the secondary market."

There is no doubt that if the issue is a success other national treasuries in Eurozone countries will find it difficult to resist the option of raising capital at relatively tight spreads without incurring on-balance sheet accounting treatment, as it offers a way to skip round strict borrowing limits that come with being a member of the European Monetary Union.

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