Italian utilities pool minibonds in new securitisation structure

Tue Jul 22, 2014 12:28pm EDT

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LONDON, July 22 (IFR) - Eight Italian water utilities in the Veneto region have side- stepped the bank loan market by pooling minibonds they have issued and using them as collateral for an asset-backed securitisation.

The special purpose vehicle used for the transaction is called Viveracqua Hydrobond 1, which issued EUR150m of 20-year notes with a coupon of 3.9%, backed by the minibonds, to provide the underlying utilities with long-term funding to develop infrastructure.

Policymakers and market participants have been looking at ways to boost lending to the SME market across Europe, and this could provide a useful template.

The transaction takes advantage of modifications to the Italian securitisation law and also to the mid-cap financing rules. The former permit a greater range of assets to back bonds, while the latter allow smaller entities to issue minibonds within the same regime as corporate transactions listed on the stock exchange. The changes also allowed insurers and pension funds to invest in such securities.

The EIB bought the majority of the bonds, which were lead arranged by Finanziaria Internazionale and co-arranged by Veneto Sviluppo. The rest went to banks and pension funds.

The transaction is not rated, but the eight utilities have unsolicited ratings from Italian rating agency CRIF.

The bond is credit enhanced through two loss-absorbing mechanisms for a total of 30m, or 20% of the deal size.

The first is a 6m cash reserve provided by the financing arm of the Veneto region, and the second loss piece comes from the utilities leaving a combined total of 24m in the structure from the proceeds of their minibonds. These minibonds cross-collateralise the structure, covering for any potential losses.

The bond follows a scheduled amortisation plan, commencing in year two of its 20-year life.

The participating utilities are Acque del Basso Livenza, Acque del Chiampo, Acque Vicentine, Alto Vicentino Servizi, Azienda Servizi Integrati, BIM Gestione Servizi Pubblici, Centro Veneto Servizi and Energia Territorio Risorse Ambientali - ETRA. (Reporting by Anil Mayre; Editing by Philip Wright)

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