Banca Commericale Italiana (BCI) launched its second securitization on on December 5. Once again the transaction was a synthetic. The deal allows BCI to free-up regulatory capital and internal limits associated with certain exposures.

The previous synthetic Scala 1 was done in November 1999 and it securitized BCI's corporate loan portfolio. This time the collateral pool was different. In Scala Synthetic 2 Limited (SCALA 2), BCI bought credit protection through credit default swaps on a EURO750m portfolio of credit default swaps of investment grade obligors in North America, Western Europe and Australia. The obligors are all rated by Standard & Poor's and/or Moody's.

According to BCI this is the first public synthetic securitization in Europe on a portfolio of credit default swaps. The transaction will have a legal tenor of five years until December 2005. BCI has a regulatory call after two years, and this was put in place if the Basle changes negatively impact the transaction.

BCI will buy credit protection through a credit default swap from SCALA 2 for the first 9.45% (EURO70.875m) loss position against which SCALA 2 will issue the Class A, B, C and D notes. The notes were divided in the following tranches:

*EURO30m Class A notes rated A/A1 (Standard & Poor's/Moody's) is priced at three month Euribor plus 70bps

*EURO7.875m, Class B notes, rated BBB/Baa2, is priced at Eurobor plus 160bps.

*EURO10.5m of Class C notes rated BB+/Baa3 is priced at plus 260bps.

*EURO22.5m of Class D notes, not rated, is priced at plus 875bps.

BCI will buy credit protection on the remaining 90.55% loss position of the reference portfolio through credit default swaps.

The reference portfolio is an undisclosed pool of credit default swaps, which will remain static throughout the life of the deal except for a possible substitution in the first 4 months or the transaction subject to certain rating agency eligibility criteria and for a maximum amount of EURO225m.

The Moody's weighted average rating of the portfolio is equal to A3; 68% of the obligors are rated A- of better. No obligor has a rating below BBB/Baa2, no obligor rated BBB+/Baa1 or above represents more than 2.70% of the reference portfolio and no obligor rated BBB/Baa2 represents more than 1.33%.

The diversity score is 34; with 23 industries (North America 11%, Western Europe 83% and Australia 6%) and no industry representing more than 8% of the Reference Portfolio, apart from one representing 12%. The transaction was sold in Italy, France, Germany and the UK to banks, insurance companies and funds.

According to Paolo Gribaudi at BCI: "The bank is looking to do a further synthetic transaction next year, and is working on two other securitization mandates."

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