Investors who own bonds in Italy's jumbo INPS transaction may be able to breathe a sigh of relief, as the much publicized problems with the E4.65 billion deal (ASRI 9/10/2000 p.3) may not be as serious as first thought.
Standard & Poor's has affirmed its AAA ratings for all three tranches after discussions with the Italian state pensions body and deal issuer, Istituto Nazionale della Previdenza Sociale, revealed that the collection figures were actually higher than had been reported.
In the initial servicer report covering the period up to the end of June, the quoted figure of L1,370 billion ($610 million) was much lower than anticipated and raised fears that there could be an extension on the expected maturity of the bonds. Now, however, S&P says the actual figure for the period was L1,960 billion after taken into account time lags in collections, set off payments from INPS to the SPV and agricultural amnesties.
Simon Collingridge, director of European surveillance for S&P in London, was confident about the reasons for the discrepancy. "Collection levels have pretty much been on target for the deal; I think the issue was more about timing and reconciliation and that should improve going forward," he said. "What became evident wasn't actually a shortfall in revenue, it was actually a delay in adequately reporting it. The originators now appreciate the need to ensure reporting is more timely than it was."
One concern raised in recent weeks was that the collection agents, the concessionari, hadn't collected anything so far, but Collingridge said that this was not a major concern. "From our point of view, the assumption had always been that it was going to take a while for the payments to kick through and we hadn't really taken much account of anything coming through from [the concessionari] in the first year."
"The agents have technical and administrative things that had to be got over and clearly that's going to take a while," he continued. "They have to start sending out forms to collect the money and once those are sent the payees have a period of time to get back to them, and by definition that is going to push back the time on which you are going to see money coming though. Because the concessionari had the figure nil beside them, that focused a lot of people's attention, but for us that was less important than the levels coming from other sources."
Although Collingridge said that the agency's interest was focused on the legal maturity of the bonds, and not the expected maturity, he feels the deal is still on schedule. "Because the reported revenues looked low, it was causing a concern to people who were looking at January 2001 for the Series 1 notes," he said. "It's not really for me to comment on what may or may not happen regarding the expected 2001 maturity, but given that the level received was L1,960 billion, there is no reason to anticipate that the bonds will be extended. I would think that what has come out now should alleviate people's concerns."
Nonetheless, investors may be alarmed that it has taken some time for that information to filter out, particularly as Merrill Lynch, one of the deal's lead managers, seemed to confirm that there were problems with the collections. The pricing on all the deal's tranches widened considerably and investors who sold on the basis that the deal was likely to extend may be feeling disgruntled.