The Italian government intends to bring at least two deals to the market in coming weeks, but plans for a third remain unsettled, sources reported.
A securitization of technology research loans, worth 1.263 billion ($1.53 billion), is slated to launch Sept. 27, and close before month end, a government official confirmed last week. Banca IMI, Dresdener Kleinwort Wasserstein and Lehman Brothers are joint bookrunners.
The securitization of loans granted for technology research is a first for Italy. It is expected to be in two tranches: A1 class, at 300 million ($365 million), comes with a weighted average life of 1.4 years. The average life on the 963 million ($1.17 billion) A2 class is 3.6 years.
Both will include overcollateralization of 20% and be benchmarked to six-month Euribor. A fixed-to-floating rate swap will be done under an agreement with Banca IMI and Lehman.
Although preliminary ratings were not available last week, an investor presentation anticipated all three agencies would assign a triple-A to both classes.
The 2,653 loans in the securitized pool were originated by two Italian state entities - the Ministry for Education, University and Research (MIUR) and the Ministry of Productive Activity (MAP). The loans are drawn from three revolving funds.
The portfolio is diverse, with the five largest borrowers accounting for only 6.6% of the total. At least 31 industries are represented in the initial portfolio. Machinery is the largest sector, receiving 19.4% of the loans, followed by chemical companies, at 10.1%.
At least 40% of the borrowers have the equivalent of an investment grade score by Standard & Poor's measure, according to the investor presentation; that rises to 50% by Moody's Investors Service scoring methodology. Although this asset class is new for Italy, the deal will be dubbed SCIC (short for Societa di Cartolarizzazione Italiana Crediti) 2.
Previously, the government issued a deal backed by personal loans to Italian civil servants and collateralised by part of their salaries. That marked its initial deal through SCIC. With SCIC 2 anticipated soon, the tightening of Italian government transactions temporarily stopped, researchers at BNP Paribas said last week. BNP Paribas noted in a report that SCIP 2 A3 widened from 13.5 to 15 basis points, which they said confirms the high volatility with this transaction over the last six months. "Anyway, we expect SCIC 2 to go smoothly and that the market will continue tightening after the issuance," researchers wrote.
Soon to follow is the next issue in an ongoing securitization program for delinquent social security payments. Banca Intesa, Credit Suisse First Boston and JPMorgan Securities will arrange the deal, expected in the fourth quarter, the Italian Ministry of Economy and Finance announced last week. Although the size of that deal is still being decided, some sources speculated that it could be worth EUR 3 billion, the same amount as the previous deal in the series.
The Italian social security service, called Istituto Nazionale della Previdenza Sociale (INPS), intends to complete its fifth securitization. Like the earlier deals, this one will be issued by SCCI (Societa Cartolarizzazione Crediti INPS). The exact timing is yet to be announced, but one government official said it would be "comfortably within 2004." She declined to comment on size.
INPS began securitizing unpaid social security contributions in 1999, with four previous deals totaling 12.36 billion ($15 billion), all rated triple-A. About 7.86 billion ($9.57 billion) has been paid down prior to the expected maturity. The debtors include employers required to fill out monthly statements for payment of social security contributions on behalf of employees; self-employed people and small businesses; as well as farm owners and agricultural workers.
Also reportedly in the works is a real estate ABS. But government officials stayed mum about that deal, which would be the third one in the SCIP (short for Societa di Catilarizzazione Immobili Publlici) series. The sometimes-troubled SCIP deals are part of the government's initiative to lower its debt burden while promoting homeownership among Italian citizens.
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