Although monoline wraps have quickly become a customary feature on many Italian health-care receivable ABS, the latest offering under the region of Lazio’s Atlantide S.r.l. series of deals gets its support from newcomer XL Capital Assurance (U.K.).
“This is a very important deal; it’s the first transaction that we’ve done in Italy,” said Frederick B. Hnat, senior managing director and chief operating officer of XLCA-U.K. Hnat said that the decision to enter the Italian market via this particular deal was largely driven by current market spreads. In the more traditional asset classes like consumer receivables, which XLCA-U.K. plans to eventually participate in, spreads are too tight for monolines to make their case. “In the Italian regional health-care sector, significant debt service savings can be realized by our participation; we have an opportunity to add value,” Hnat said.
Under the terms of this securitization transaction, Atlantide S.r.l. has been created as a special purpose vehicle to issue 964 million ($1.2 billion) of notes backed by payments it will receive from the region of Lazio on behalf of the region’s 20 local health-care authorities. XLCA-U.K. issued a triple-A rated financial guaranty for 482 million of notes offered in connection with the securitization of past due receivables for medical services and equipment provided to health-care authorities within Lazio. Lazio – which encompasses the city of Rome and surrounding provinces in west central Italy and is also one of 20 Italian regions – is one of the more active regions to issue such securitizations. The region’s Atlantide series two deal also carried a monoline wrap (ASR, 06/26/06). UBS and Banca Intesa S.p.A. acted as arrangers for the transaction.
Origin of deal
The transaction was made possible when the region, the local health-care authorities and the health-care suppliers signed a settlement agreement where the suppliers agreed to drop any legal action against the health-care authorities in relation to the unpaid receivables. The health-care authorities have also agreed to reschedule their debt over 10 years, and the region agreed to accept an assignment from the health-care authorities for the payments due under the settlement agreement.
“Lazio provides explicit support on the debt,” said David D. Stortz, managing director and head of XL Capital Assurance’s specialized risk group. “We looked at the credit of the region of Lazio and looked at this deal as sovereign risk to Lazio.” Stortz said it was key to allowing XLCA-U.K. to get comfortable with the deal, otherwise the insurer would have basically taken on the risk of medical receivables. “We would not take this type of risk on directly,” he added.
There have been other transactions to emerge from the Lazio region involving pharmaceutical receivables securitized on a secondary finance basis. These receivables were purchased by some banks, which then issued some of the assets under a securitization structure. A new deal involving pharmaceutical receivables, dubbed Panacea, is slated to come to market later this year. And this month, Capitalia priced its 654 million deal backed by unpaid invoices for medical supplies and services owed by health-care units in Lazio. Capitalia is the fourth largest Italian bank based in Rome, and recently acquired over 700 million in receivables from health care suppliers. These deals have typically not been wrapped. Stortz said that the risk profile within this asset class varies from deal to deal – there are different nuances to some of these other transactions that make it less attractive for monolines.
Going forward, XLCA-U.K. said it expects to add more of these deals to its repertoire. “Italy is one of the largest markets for securitization in Europe,” Hnat said. “And in the areas in which monolines are typically involved, like consumer ABS, the spreads tend to be very tight in the current environment. Health care is one of the areas where we have an opportunity to make our case. From a credit perspective we view the provision of health-care services within the Italian regions as essential’.”
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