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Italian Bank Prices Hybrid CDO

15 Jul 2001

Italian Investment bank MPS Finance is pricing a EUR352 million (USD300 million) hybrid collateralized debt obligation referenced partly to banca poploare di spoleto's loan portfolio. Giacomo Corsini, head of sales at MPS Finance in Siena, said spoleto's loan portfolio was diversified using credit default swaps to make it more attractive to investors and now 46% of it consists of credit default swaps. He added the 10-year deal will hit the market Monday.

By using credit default swaps MPS Finance has reduced the concentration of Italian debt and achieved a Moody's Investors Service diversity rating of 41 out of 100. The largest exposure to a single industry is banking with 9%, this also includes the three largest names, Deutsche Bank with 6.3% of the portfolio, Efibanca with 3.7% and Mediocredito Lombardo with 2.7%. The geographical concentration has also been reduced with only 13% of the portfolio originating in Italy. Approximately half comes from the U.K. or the U.S.

In the transaction a special purpose vehicle sells four tranches of credit-linked notes adding up to the total value of the reference portfolio. The triple-A rated notes account for EUR239 million and will pay 40 basis points-45bps over six-month Euribor. The structure also includes EUR17 million of single-A notes paying 90bps-110bps, EUR5 million of triple-B notes paying 220bps-240bps and EUR10 million of unrated notes, which will be privately placed.

This is the second hybrid CDO the investment bank has put together. The first was Vintage Capital, a hybrid CDO on a portfolio of EUR360 million it issued with Bank of America in February. Corsini said the bank still has EUR2 billion of structured credit products to place before year-end, including two hybrid CDOs. He declined further comment.

MPS Finance is the investment-banking arm of Monte dei Paschi di Siena.

15 Jul 2001