Italy's latest twist on securitisation

The Cassa Depositi e Prestiti is the latest Italian agency to sell off a large chunk of the state's debt. But the deal’s complexity has called for a new approach to securitisation.

The newest Italian government agency debt securitisation is an unusual e3.6 billion transaction backed by thousands of loans made by the Cassa Depositi e Prestiti (CDP), the Rome-based public financing body. The number of loans – about 2,000 – and their diversity makes the portfolio’s credit risk difficult to ascertain, so, in a new twist for the Italian securitisation market, the CDP and its advisers have divided the collateral into a series of homogenous portfolios to be sold separately.

Unlike the Italian securitisations that rating agencies have criticised as flawed attempts to reduce the country’s public-sector debt, this transaction is meant to capitalise a new funding vehicle for public/private partnerships. It is Italy’s third-largest securitisation of state loans to date.

The CDP is working flat out with rating agencies and investment banks to have the first notes issued by the middle of this month, with Banca IMI, IntesaBCI, Lehman Brothers and UBS Warburg lined up to arrange the issue. It expects to complete the sale by mid-March. But according to Andreana Esposito, a Rome-based financial analyst with the Italian Treasury who is currently working for the CDP on the transaction, the full details of the deal are yet to be finalised.

The securitisation was kicked off in December when the CDP, which manages around 10% of Italy’s public debt, set up a special-purpose vehicle called Cartolarizzazione Pubblici Gestori and transferred the collateral to it.
“All the loans were granted to public services providers, but then they were grouped into different portfolios because the service of the debt is sometimes made by the state or local authorities,” says Esposito. The debt backed by the state carries the least risk. “Then there is another portfolio that is composed of public service providers as beneficiaries and debtors.” This portfolio has a higher risk weighting. Finally, there will be a small number of notes linked to single company names. These may be structured in one or two portfolios, she says.

The CDP has not yet decided whether to issue one note for each portfolio or divide them into senior and subordinated tranches. “It will probably be one or more notes with different ratings,” Esposito says. “But each of these notes will be backed exclusively by its own portfolio. We are going to decide depending on the cost of the tranching, on the demand from investors and on the feedback from the rating agencies.”

Esposito expects the portfolio that is backed by the state to receive a double-A rating, and she expects the entire issue to be investment grade. Rating agencies Standard & Poor’s and Moody’s Investors Service declined to comment on the deal because they are currently rating it.

The Italian government has been securitising loans since 1999, after a law was passed to establish the legal basis for securitisation in the country. Since then it has raised billions of euros by securitising, among other assets, social security payments arrears, commercial real estate and lottery ticket income. But previous securitisation deals have been criticised on the basis that they are being used to bring the country’s debt levels in line with European Union rules limiting public debt.

This deal may escape that criticism: proceeds will capitalise Infrastrutture, 100% owned by the CDP, which it is setting up to finance projects independently of its parent. “The new company is aimed at co-financing infrastructure projects, and projects of public aim – the main part with money coming from private companies.” In other words it will be engaged in public/private partnership projects, something that the CDP is restricted from doing by law.