It no longer looks like the Italian SCC INPS transaction will be causing further problems, as was previously suspected based on a 25% fall in collections at the last reporting period, which covered collections from August 2001 to October 2001.

The deal had previously caused concern in August 2000 when the concessionari, a collection system of special servicers set up for the transaction, initially fell below expected levels. However, since that date the Italian government has hammered out the kinks and has set up a variety of state-supported securitizations. In January 2001 the Series 1 notes of SCC INPS were paid in full, suggesting that the collection system had stabilized.

Yet this latest report rings true regarding the initial concern over collections. Dresdner Kleinwort Wasserstein said: "Having been on a rising trend since August 2000, collections fell by around 25%. This on its own would not be a major cause for concern but collections from condoni [claims subject to amnesties where the debtor has accepted the government's offer to reschedule the debt] by INPS, which were expected to be a stable source of cash flows, proved to be weaker than expected and also showed a decline during the last quarter."

Much depended on the upcoming reports that show how much was collected between November 9, 2001 and January 31, 2002, primarily because during this period SCCI was due to make a sizeable payment of EURO2.1 billion and contrary to fears, the performance of INPS on a whole has performed well.

"Although the condoni is well behind budget, the out performance of the concessionari payments has more than made up for this," explained an analyst at Morgan Stanley. According to performance reports, collections in 2001 stood at 18% ahead of budget.

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