Italian deals attracted a lot of attention in Europe last week, as investors looked over the newly marketing 500 million ($637.5 million) tap issue for a railway project, scooped up a 193.3 million future flow transaction for a pharmaceutical factoring company, and weighed the potential fallout from a still struggling SCIP 2.

Italy's Infrastrutture SpA offered its 500 million tap in a single tranche of 30-year notes, which came with price talk at 21 basis points over swaps. The ratings were Aa2 from Moody's Investors Service, AA-' from Standard & Poor's and AA' from Fitch Ratings.

The issue, led by Caboto, Dexia and Mediobanca, is part of an ongoing program to finance a 30 billion high-speed railway between Naples and Turin. A previous issue in June was for 1 billion.

Farmafactoring, an Italian pharmaceutical factoring company, securitized payments due from the Region of Lazio in a 193.3 million deal via Merrill Lynch and Dexia.

Although some details, such as the average life, were not immediately available, the single-tranche deal, called FL Finance Srl, priced at 23.5 basis points over six-month Euribor. The notes were rated A1' by Moody's and A+' by S&P.

Italy also drew some heavy scrutiny, following the recent release of the SCIP 2 investor report. The report itself generated a lot of ink from analysts, who described collections as slow, despite signs of improvement. Then even more commentary came when Fitch placed all tranches of the deal on rating watch negative last week. There had been no rating actions as of press time.

But numerous analysts predicted more trouble ahead for this 2002 vintage real estate deal, part of the Italian government's initiative to lower its debt burden while promoting homeownership.

Spain also continued to get its share of attention from the European market, as a few more SME CLOs surfaced, and several others priced.

Anticipated shortly were a 1 billion BBVA 3 FTPYME for BBVA and a 750 million FTPYME TDA CAM-2 for Caja de Ahorros del Mediterraneo. Among the others said to be lining up were a 214 million deal for UNICO Group, called FTPYME RURALPYME 1, and a 600 million deal for Banca Sabadell, called IM FTPYME Sabadell 3.

Four others have priced so far, with two of those, Banco Pastor's 800 million deal and Banca March's 200 million deal wrapping up last week. Banco Pastor led its deal, along with BNP Paribas and DKW. In an unusual twist, two of the classes in GC FTPYME Pastor 2 came wrapped.

The bulk of the notes - 530 million - were in a 1.7-year, triple-A rated Class A, which priced at three-month Euribor plus 12 basis points. The pricing on the 164.6 million Class BG, which had a guarantee from the Spanish government, was unavailable. However, the price talk on that tranche, with a 5.3-year average life and triple-A ratings, was at three-month Euribor flat to plus one basis point. Class BS included 42 million of 5.3-year, double-A rated notes, which priced at 22 basis points over three-month Euribor.

The European Investment Fund guaranteed the 40.4 million C class. The 7.3-year notes, rated triple-A, cleared at Euribor plus 10. Class D, also with a 7.3 year average life, included 23 million of notes rated Baa3' by Moody's only, priced at plus 175 basis points.

Calyon Securities led the Banca March deal, FTPYME Banca March. It had four classes, all rated by Moody's only. The 2.2-year Class 1SA, totaling 136.8 million and rated triple-A, priced at 20 basis points over three-month Euribor, with the 36.2 million 6.4-year 2CA class pricing at Euribor flat, buttressed by its Spanish-government guarantee. It also included 9.2 million of 6.4-year, Aa2' rated Class 2SA notes, pricing at plus 40, and 17.8 million of 8.9-year, Baa3' rated Class 3SA notes pricing at 100 over.

One other Spanish SME CLO deal finished at the tail end of the previous week, the 1.8 billion FTPYME Santander 2 for Banco Santander via BSCH and SG CIB. Merrill Lynch researchers report that the Santander deal priced closer to 2003 levels than FTPYME Bancaja 3, which was the first of the Spanish SME CLOs to get done this quarter.

The tighter Santander spreads seemed justified by its higher real estate backing (87% vs. 75%), lower LTV (53% vs. 60%), and tranche sizes large enough to give some liquidity, according to Merrill Lynch, which also pointed to 70 basis points for the single-A notes and 150 basis points for the triple-B notes as a particularly good value.

A 1 billion Spanish auto loan deal for BBVA also priced last week, after a delay caused by the apparently overworked Spanish regulator CNMV.

JPMorgan Securities and BBVA led the deal, which was reportedly oversubscribed, despite tightened guidance. BBVA Autos 1 included 940 million in a 3.4-year, triple-A rated senior class, which priced at 13 basis points over three-month Euribor. 23 million of double-A rated Class B notes priced at 21 basis points over, while Class C had 27 million of single-A rated notes pricing at 30 basis points over. The average life for both the B and C notes was 5.4 years.

All the tranches tightened, but much more significantly so for the smaller pieces. The original guidance had been 15 basis points over for Class A, high 20s for Class B, and mid to high 30s for Class C.

"Given where other loan paper has been trading, the deal looks to be pricing in line with the secondary market," BNP Paribas analysts said just before the BBVA transaction wrapped up. "We foresee little tightening in the secondary market after this deal breaks."

Despite the continued focus on the primary market, prime RMBS issuance has been light, and BNP Paribas traders said they expect demand for the upcoming Permanent 6 from HBOS to be very good.

Secondary trading remained relatively quiet, as it has for the past several weeks. "There appears to be good appetite in the primary market, with deals several times oversubscribed in all tranches across all asset classes," BNP Paribas traders wrote in their market commentary. "However, the secondary market has yet to offer the relative value necessary to drag investor attention away from primary transactions, leaving the secondary market feeling ignored."

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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