Moody's Investors Service recently confirmed its triple-A rating for all three tranches on the Italian state social security body's EURO4.65 billion securitization of social security assets.

However, Moody's said that it had serious concerns that "certain negative developments might result in pressure on the existing ratings" of the deal from Istituto Nazionale della Previdenza Sociale (INPS) - and yet again the troubled deal has become the subject of unwelcome speculation in the European market.

The move by Moody's follows Standard & Poor's Rating Services recent assessment that collection figures were higher than had originally been reported (ASRI 9/25/2000 p.1), which initially alleviated some of the fears investors had that the bonds were going to be extended.

Although Moody's, like S&P, believes that certain issues relating to collection - namely that the concessionari, the collection agents, had so far failed to retrieve any funds - have been cleared up, it still believes there are two issues which must be resolved if the deal is to perform to expectations in the long run.

The first concern relates to the reimbursement of legal proceeding fees incurred by the concessionari, something that has failed to materialize despite being a part of the 1999 servicing reforms. This delay, according to Moody's, "could possibly further inhibit the concessionari from performing their legal recoveries as anticipated." This should be resolved, as the Ministry of Finance has assured Moody's that the decree would be enacted immediately.

The other major problem is connected to the concessionari being denied access to information about debtors from a key source. At the moment, the agents cannot see records from the Italian tax database, which prevents them from finding details on what assets are owned, and therefore can theoretically be seized. At this point, it is not certain whether this will become law under an official government paper.

On other fronts, Moody's also wants to draw investors' attention to factors that, if they continue, may force downward pressure on the ratings. These include below expected recovery figures for the condoni - credits where an amnesty is granted on certain penalties and interest that would have had to be paid by debtors, in exchange for a commitment to repay debts under a scheduled payment plan.

Problems with the accuracy of reporting and further delays to implementing the reform decrees for the concessionari could also affect ratings.

Moody's guarded commitment to the current ratings has not increased the confidence of investors or the bank community who still believe that somewhere along the line, the INPS transaction is going to hit major problems.

It also raises the question of how investors are going to receive the imminent securitization from INAIL, the government organization that deals with insurance against accidents and illness contributions from Italian workers, as well as the second INPS deal expected before the year is out, and the many other non-performing deals that are continuing to come out of Italy.

"Everybody knows the INPS deal is not exactly a pristine credit story," commented one respected analyst in London. Even though everyone has backtracked now and said, Don't worry: the money will come in', I think that the fact that there was an issue at all should cause people concern. Any hiccup is a bad thing. If I'm an investor and I've got other deals to choose from, I'd be very wary about the Italian deals. I think that these problems could actually cause pressure on spreads."

With that in mind, one can expect that the INAIL deal due out shortly will have to offer investors a substantial premium on the bonds. The E1.35 billion single tranche transaction, called INAIL Societa di Cartolarizzazione, will securitize payments that are in arrears from a preliminary pool worth just over E3.75 billion. BNP Paribas, J.P. Morgan, Finanziaria Internazionale and Medicredito Centrale were brought in as arrangers for the transaction.

Moody's, S&P and Fitch have all given a provisional triple-A rating for the notes.

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