The overabundance of Italian securitizations issued since Italy passed its 1999 securitization law has generated concentration issues - a potential headache for investors seeking a geographically diverse portfolio. The situation may be set to change, however, as a "lockout" period attached to certain transactions comes to an end.

According to a report by Dresdner Kleinwort Wasserstein, about two-thirds of Italian ABS are structured with an 18-month lockout period designed to mitigate a withholding tax of 20%. The tax would be applied to all interest accrued if principal were repaid during the initial 18-month period. While an obvious cost benefit for issuers, the lockout period bars investors from reducing their exposure to the transaction. For the first 18 months, investor exposure remains fully outstanding and does not decrease as it would in a conventional pass-through structure.

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