Ahorro Corporacin Financiera, SVB, SA is adding flavor to the Spanish market with its second-ever repackaged mortgage-bond deal, to the tune of E2.5 billion.

Expected to close next week, the deal involves seventeen savings banks that will issue 17 cedulas hipotecarias, mortgage bonds, that are collateralized by a mortgage portfolio from each individual bank. The cedulas are then sold to the fund, AyT Cedulas Cajas II, Fondo de Titulizacin de Activos.

Standard and Poor's assigned a triple-A preliminary rating to the transaction last week. "The cedulas are strong and the mortgages are overcollateralized," said Jose Ramn Tora, analyst at the Madrid office of S&P.

The rating reflects the strong credit quality of the cedulas, and a natural interest rate hedge provided by an even cashflow match between the interest due on the cedulas and the interest due on the bonds. Each cedula is secured by the issuer's entire book of mortgages. Overcollateralization levels at June 2001 for each cedula hipotecaria to be purchased by the fondo ranged from 4.7 times to 38.0 times.

The one possible drawback of the transaction is that the collateral is owned by each bank. If a bank were to become insolvent, it would take time to recover the collateral however, on the upside, S&P is confident that if such a case were to occur, the collateral would in fact be recovered.

"It's not a traditional deal," said Tora. "I think it will be successful and I think there will be more of them."

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