S&P:Italy's 1st Auto Loan Securitization Launch Nears

Business Wire, June 26, 2000

Business Editors

NEW YORK--(BUSINESS WIRE)--Standard & Poor's

June 26, 2000--The first Italian auto loan securitization transaction is being readied for market, Chris Brown, a member of the transaction arranging team at Euro Capital Structures Ltd. confirmed today.

"We started the road-shows today with the first being held in Milan, followed by London, Paris, and Frankfurt; the deal will launch soon after, " he said. "We feel this transaction has set a benchmark for the Italian market."

Mr. Brown added further that the transaction was arranged in euros to attract a wide investor base and a lot of interest has already been expressed.

"There's a lot of appetite for both triple-'A' paper and Italian risk at the moment so we're expecting the transaction to sell down very quickly," he said.

The euro (Eur) 1.084 billion transaction, which was originated by Fiat SAVA S.p.A, was also the first Italian auto loan securitization to take advantage of the new Securitization Law that was enacted in April 1999, Michael Oehm, associate director at Standard & Poor's Structured Finance Ratings group in London explained.

"The transaction represents a landmark in the growing Italian securitization market and is likely to precede further transactions backed by loans and consumer finance assets," he said. "A number of Italian financial institutions have large pools of assets on their books and we're expecting them to take advantage of securitization technology to facilitate balance sheet management."

Mr. Oehm explained further that the Italian Securitization Law was conceived as a means to increase the use of securitization as a financing technique in the Republic of Italy.

"With regard to the Italian auto transaction, the Law applies to securitization transactions involving the "true sale" of receivables, where the sale is to a company created in accordance with Article 3 of the Law," he said. "All amounts assigned by the assigned debtors are to be used by the relevant company exclusively to meet its obligations under notes issued to fund the purchase of such receivables and other costs and expenses associated with the securitization transaction."

Collateral for the transaction is based on auto loans receivables originated by Fiat SAVA S.p.A. The contracts have all been originated by Fiat SAVA and are serviced under Fiat SAVA.

From a rating perspective Mr. Oehm added that one of the key challenges was assessing the risk in calculating the net present value (NPV) discounting the payment flows at the funding cost of the issuer to the swap counterparty, rather than discounting each receivable at its own internal rate of return.

"This created a risk to noteholders that if a loan prepays which has a rate of interest above the discount rate, then this will cause a loss to the issuer; alternatively, if the inverse occurs the issuer will make a gain," he said. "The risk was covered by assuming a stressed prepayment rate on the highest yielding assets and sizing the possible loss that may occur during the revolving period."

Mr. Oehm added further that Standard & Poor's found comfort in the fact that the two sources of credit and liquidity enhancement can be used to cover loan payments due but not received as a result of delinquencies and/or defaults.

"Any losses/shortfalls that arise will be covered firstly from payments of principal and interest due to the class M notes which will be redirected," he said. "If this is not sufficient then amounts will be drawn from the liquidity reserve account."

A copy of Standard & Poor's complete presale report for this transaction is available on RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com. The report is also available on Standard & Poor's Ratings Services Web site at www.standardandpoors.com/ratings. Under Presale Reports, select Structured Finance, then Asset-Backed Securities, Standard & Poor's said. -- CreditWire