Banks bid for Roman risk management

Rome is expected to make extensive use of derivatives, including caps and collars, to lower the overall cost of financing its debt, the bankers said.

Up to now, Rome's debt profile has been conservative: constituted only by long-term loans with no foreign currency exposure. The city has a AA- rating from agency Standard & Poor's and has set itself stiff targets for reducing its debt-to-GDP ratio by the end of next year.

Some bankers are also hoping Rome will take advantage of a clarification by the Italian government of the classes of assets municipal and regional authorities can use to securitise bond issues and therefore lower their financing costs.

The Italian government has been securitising assets and selling them in the capital markets since 1999, when the government’s own Law 130 established the legal basis for securitisation in Italy. Since then, the government has raised almost €6 billion by securitising social security payments arrears and – in smaller deals – has also securitised commercial real estate, lottery ticket income and Paris club loans to lesser-developed countries.

The central Italian region of Lazio experimented with securitisation-related financing in February 2001, raising a total of €500 million with a back-to-back loan structure arranged by Merrill lynch and Mediocredito Centrale. The financing was raised by a vehicle dubbed Cartesio, which was backed by payments to the Italian government from Lazio to clear the region’s healthcare deficit, and also by European sovereign-credit securities.

Late last year, the Italian government clarified exactly what assets regional authorities can securitise – including commercial property and utilities – and now the floodgates are expected to open. International rating agencies report a flurry of enquiries by banks pitching securitisation deals to Italian regional authorities.

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