It has already been a busy year for Italy's robust ABS pipeline. Merrill Lynch and Depfa-Bank Europe plc recently launched EURO400 million ABS notes under Cartesio S.R.L. These notes are the first tranche of a total of EURO1 billion asset-backed euro MTN program to be launched. The notes are secured on a loan made by Merrill Lynch to Treno Alta Velocita; SPA (TAV). The Italian state railway guarantees TAV's obligations, which in turn is guaranteed by the Republic of Italy.

The loan is to be used by TAV to finance the development of the Italian high-speed railway and will be drawn down in three tranches. Future issuance is expected between June and October 2001.

The notes were awarded a 0% risk-weighting by the Bank of Italy and according to Justin Fox, director in Merrill Lynch's structured finance group, this had an important impact on pricing and distribution. The transaction pays an interest rate of three month Eurinbor + 10 basis points.

Merrill Lynch is also arranging a second transaction with Mediocredito Centrale (part of the Gruppo Bancaroma) for the Region of Lazio, which began road showing at the end of January. The transaction, Cartesio S.r.l Series 2001 - 2, totalling EURO1 billion is divided into two tranches of EURO500 million each. The transaction is awaiting rating confirmation but is expected to be rated Aa3 by Moody's and A+ by Fitch.

The deal is backed by a loan made to the region of Lazio which in turn is backed by payments made by the Italian Treasury to the Lazio region to cover past deficits of the National Healthcare Service. The amount the region was allocated in the 2000 budget law amounts to EURO1.132 million. The transaction is structured in two tranches:

*Tranche 1, EURO500 million with maturity in August 2000;

*Tranche 2, EURO500 million with maturity February 2004.

The transaction was still road showing last week and pricing had yet to be finalized. The President of the Lazio region announced in a press conference that Lazio would return to the ABS market with a second deal.

Also out of Italy's busy pipeline, ABN Amro launched a EURO331 million RMBS for subsidiaries belonging to the Italian bank Bipop-Carire group under the Upgarde S.p.A SPV. The mortgages are located in the North of Italy. The transaction launched in two tranches:

*EURO180 million tranche rated triple-A by Moody's and Standard & Poor's, which was priced at 27 basis points over three month Euribor (five year soft bullet).

*EURO30 million single-A rated tranche was 70 basis points over three month Euribor (five year soft bullet).

According to ABN the transaction was important as the investor diversification was out of Italy, with less than 1% distributed in Italy., with around 40% sold into the U.K. and Ireland; 13% in Germany; 22% in Netherlands, Belgium and Luxembourg and a further 17% in France.

Marco Grimaldi at ABN AMRO added that an important feature of the transaction was that it was completely isolated from any potential exposure to the new ruling on the application of the 1996 usury law.

The transaction minimized the risk by removing any loans that have had any periods during which their interest rates could be considered as usurious and secondly, if any loan in the future has a rate that became usurious, the obligor will have the rate reduced. Consequently, Moody's believes that such action minimizes the likely impact of the ruling on the transaction.

The recent ruling given by the Italian Supreme Court could have a dramatic effect on lending. According to Moody's a new government decree may ameliorate many situations; nevertheless this is still subject to parliamentary action. So Moody's added that until greater certainty reigns it must be recognized that the negative impact on individual creditors and debt obligations remains potentially very substantial. In particular, the potential impact must be considered in any securitization of loan obligations, and especially so, when excess spread provides significant credit support.

Citibank/Schroder Salomon Smith Barney has also launched an Italian RMBS transaction, a total of EURO331 million were issued by Orio Finance No. 2 PLC, a special-purpose entity. The goal of the transaction was to refinance a new revolving pool of Italian-noted loans and as well as existing rated Holmes securities. The transaction therefore consists of two different assets: EURO285 million notes representing a portfolio of first-ranking loans originated by BPB and a EURO46.7 million pool of Holmes securities which are rated triple-A.

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