This month, UniCredit launched its inaugural OBG (Obbligazioni Bancarie Garantite) benchmark.

The transaction, which reopens the Italian covered bond market, was met with very strong interest from the international investor community, sources at the bank said. The issue is part of the €20 billion ($28 billion) program published in 2008 and based on a portfolio composed of 100% residential mortgages.

UniCredit is active in Italy, Central Eastern Europe, Austria and Germany. However, only Italian residential mortgage loans serve as collateral for the covered bond program. These are originated by the UniCredit Family Financing segment and sold to the collateral pool by way of a true sale transaction - provided they are in line with the legal requirements to eligible assets.

The structure was originally scheduled to come to market as a €2 billion jumbo, but the deal was covered by double the orderbook, allowing the deal to close early this morning ahead of schedule. The issuance - managed by UniCredit (HVB) with BNP Paribas, Citibank, Deutsche Bank and UBS - has been taken up by close to 200 institutional investors, mainly funds (60.1%), banks (26.7%) and insurance companies (11.3%).

Dresdner Kleinwort analysts explained that the pool is an SPV securing covered bond holders' recourse to the cover assets through a guaranty. The Italian covered bond law also foresees an integrated approach where the cover assets may remain on the issuer's balance sheet, as is the case with the German covered bonds, but the central bank's regulations currently limit the setup to an SPV model similar to that of U.K. covered bonds.

"Yet unlike the latter, the collateral assets are sold directly to the SPV rather than pledging the legal title to it," analysts said. "This ensures solid quality with regard to bankruptcy-remoteness of the cover assets and - in line with other areas of Italian law - is based on the domestic securitization legislation (law 130/1999), which has already been frequently applied."

UniCredit's OBG are expected to be rated 'AAA'/'Aaa'/'AAA' by Fitch Ratings/Moody's Investors Service/Standard & Poor's. The seven-year issue will pay a coupon equal to 4.25%, equivalent to 103 basis points over the equivalent swap maturity. The issue price has been set at 99.666%.

"As residential mortgage lending is part of UniCredit's core business, covered bonds could be considered a natural source of funding, particularly since the RMBS market is still not functioning adequately," Dresdner analysts said.

Apart from UniCredit, Banco Populare di Milano, UBI Banca and Banca Carige have already set up covered bond programs compliant with the law passed in Italy in 2007.

(c) 2009 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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