Italy's first public securitization of nonperforming loans and the first transaction to make use of the new Italian securitization law hit the markets recently, the first of what is expected to be a series of transactions from Italian banks looking to take advantage of the new law.

The deal, arranged by Paribas and Finanzaria Internazionale for Banca di Roma and called Trevi Finance, is worth a total of E1.412 billion ($1.44 billion), though only the top two, single-A rated tranches, together worth E775 million, were publicly offered.

It is backed by a pool of loans with a net book value of E1.595 billion (the gross value was E2.643 billion. One-third of the pool is made up of first-lien mortgages, 77.6% of which are residential. The rest of the pool is made up of unsecured loans made to corporations and individuals.

Of the deal's other three tranches - C1, C2 and D - Banca di Roma aims to sell the C1 and C2 pieces, each worth E206.5 million, with its own guarantee and a liquidity provision. The first-loss D class, worth E224 million, will be retained.

Even though investors were required to put in a lot of work to understand an asset class that they have not seen before, the two offered tranches were snapped up - largely because of the relatively generous spread offered on both classes. The three-year, E620 million A class was priced at 40 basis points over six-month Libor, while the six-year, E155 million B class was priced at 240 over six-month Libor.

Both pieces were sold largely to funds, insurers and banks in Italy, Germany and the U.K. with the balance going to France, Switzerland and the Benelux countries, according to a Paribas official.

"We sat down with Paribas for quite a long time because we've never really looked closely at anything like this before, but there are likely to be many more of these deals and it is worth doing the work, particularly as getting into a new asset class early is rewarding," a London-based investor said. "Plus the historical data they and Banca di Roma provided is pretty convincing and the spread is hard to resist."

The investor added that because holders of the two senior tranches are protected not only by the subordinated notes but also by a E310 servicer advance facility provided by the issuer, they will be repaid even if only 30% of the value of the assets is recovered - as opposed to an expected 55% after five years.

Securitization pros at rival firms were quick to praise the deal as an impressive opening for a new and complicated asset class. "You can quibble about how much of the deal has been sold free from Banca di Roma's credit, but they've got it done, and they've opened a new asset class and educated a lot of investors," said one head of a European ABS team. "The market should be pleased."

Banca di Roma is not the only Italian institution that has realized the benefits of nonperforming asset securitization. Banca Intesa in Milan, for instance, recently acknowledged that it is working on two securitization transactions - one deal backed by nonperforming mortgages and another by healthy mortgages, said Camilla Tinari, the person responsible for coordinating the bank's securitization efforts.

Tinari said that the nonperforming mortgage deal will be backed by loans with a face value of E1.57 billion, though she declined to speculate how much the mortgages are worth in reality.

That is thought to be something that will be established by Deutsche Bank, which has been hired to advise on the transaction, though not mandated as deal arranger or underwriter.

Intesa hopes to launch the deal by the end of the year after which it will turn to its healthy mortgages. It has hired Credit Agricole Indosuez to advise on the feasibility of a revolving MBS program, possibly with issuance in chunks of around E520 million. Securities house Caboto is also advising Intesa.

Not to be left out, J.P. Morgan is conducting a due diligence of Fonspa's nonperforming assets with a view to a securitization. - Matthew Davies

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