The much anticipated covered bond deal under the €20 billion ($26.6 billion) program from Italian state lender Cassa Depositi e Prestiti (CDP) is expected to come to market by January next year. CDP will issue various series of bonds -- the inaugural issue is expected to be worth €2 billion. Standard & Poor's assigned a 'AAA' preliminary credit rating to the bonds.

Market sources said Italy has the potential to offer €200 billion in covered bond product. Commerzbank reported last week in its Covered Bonds Navigator that total RMBS issuance from Italy for 2003 and year to date 2004 was recorded at €9 billion and €6.7 billion respectively. "The slowdown this year may be due to issuers expected use of covered bonds," said researchers. "So far, Italian issuers have only gone down the true-sale securitization route achieving some regulatory capital relief and risk transfer alongside funding. Under Basel II and IFRS it will be less favorable to use RMBS; therefore a shift in issuance towards covered bonds can be expected."

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