The on-going drama surrounding the deliquent pension receivables transaction for Italian state pensions agency, INPS, shows no signs of becoming less operatic, according to sources close to the deal.

As the ASRI was going to press, the Italian treasury had invited banks to bid for the mandate to underwrite the transaction, but had yet to make a decision. More than a dozen banks had attended a meeting with INPS and the treasury, but it is unclear how many will finally put in a bid. However, INPS officials insisted that it was still possible that the deal, which is being arranged by Morgan Stanley, Warburg Dillon Read and San Paulo IMI, would be launched before the year-end.

The final shape of the transaction is clearer, however. The E4.5 billion total will be split into equally-sized chunks: two bullet tranches, with two and three year maturities, and an amortizing piece with an eight-year final maturity.

All three tranches are expected to be rated triple-A by four agencies and will do without a government guarantee.

However, while some market experts were expressing sceptism about how easy it would be to sell the deal in particular the amortizing piece others pointed out that the rating agencies were still some way from being able to sign off on the deal.

At least one rating agency was concerned about the difficulties of conducting a thorough due diligence because of incomplete information about the performance of the underlying assets and the difficulties of relying on assumptions about the assets' future performance, according to one source.

Another expert suggested that a further difficulty was relying on the performance of a newly formed servicing operation, a subsidiary of INPS. "There isn't much history to show how well the servicing will be done and how much will be recovered," the expert said.

Because the proceeds of the deal have already been accounted for as part of 1999 Italian state budget and are necessary for Italy not to breach the fiscal criteria of the European Union's Maastricht Treaty bankers have been under pressure to close it before year-end, but market pros point to precedents in France and elsewhere for state funding deals to be closed after the end of the budget year but retrospectively counted as part of that year's funding. "Governments can get away with things that no one else can," said one.

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