A new legislative decree that discounts the prices on property units securitized in the Italian government-sponsored SCIP 2 real estate deal should not impact payment collections, says Standard & Poor's. The rating agency does not foresee any immediate rating action.

The Italian government recently approved this discount price program.

Under provisions set by the decree, the Republic of Italy is responsible by law to indemnify the transaction against any shortcomings that might result from the lower revenue collected on the purchase of the discounted property units, S&P said. Further, the Italian government is not expected to indemnify tenants who purchased units prior to the February decree.

As an additional safe measure, a bank liquidity line of 800 million (US$974 million) will be provided in the form of a subordinated loan to the SPE. This line will be fully drawn before the interest payment date in April. It should cover any potential interest and payment dates under the S&P-rated notes. According to the agency, those tenants of "pregio," or prestigious property units, will not benefit from any discounts in the sale price allotted under the new decree.

"On the next payment date (April 2004), the 1.5 billion class A1 notes are expected to be redeemed," reported Dresdner Kleinwort Wasserstein. "The rate of property disposals has been well behind the business plan since closing. As of the last reporting date, cumulative net collections that include rental payments stand at 693 million. It is possible that the issuer may use the liquidity line in combination with the existing collections to redeem the class A1 notes."

Proceeds for the first two collection periods were reported significantly below the servicer's business plan as a result of operational delays in the disposal process. S&P estimated that approximately 9 million was raised in the two periods amounting to only 1% of expected proceeds. The agency nonetheless affirmed its credit ratings on all classes of notes, noting that for this kind of transaction, cash flows - especially in terms of timing - are expected to be irregular and operational delays are accounted into the rating analysis.

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