Italian securitization SCIP 2 has become synonymous with struggle. Last week, headlines heralded another round of shortcomings in the transaction's payment schedule that could trigger a ratings downgrade on the notes (see ASR 11/1/04).

"The notes are a speculative buy/hold for investors betting on the bail out by the Italian government," reported analysts at Dresdner Kleinwort Wasserstein last week. "After all, it would be the first transaction not to be refinanced/supported - however, that is a lot to bank on." Nevertheless, the launch of SCIP 3, postponed last year, is expected to surface in the 2005 pipeline, said market sources.

Issued by the Italian Societa di Catilarizzazione Immobili Publlici SCIP2 is backed by proceeds from an ongoing sale of public property. The release of the transaction payment report last week shows that collections reached 400 million ($522 million) for the quarter ending December 31, 2004. Collections during the remainder of this quarter would have to total around 1.3 billion in order to fully redeem the class A2 notes by the expected April 2005 maturity date, according to market reports.

"Assuming quarterly collections continue at 400 million, we estimate the class A2 will receive approximately 1 billion principal in April 2005," explained analyst at JPMorgan Securities. "The remaining 1 billion on the A2 tranche will amortize over three subsequent payment dates and the tranche would be fully repaid in January 2006. Other tranches will also extend beyond the expected maturities and the C1 tranche will receive its final cash flow in January 2008."

Last November, Fitch Ratings placed all four outstanding tranches on ratings watch negative. Industry sources believe that the C1 notes are most exposed to downgrade risk, but a one-notch downgrade to single-A would bring the ratings in line with the ratings already assigned by Moody's Investor Service.

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