TAV: A high-speed solution
In late January Italian high speed rail company Treno Alta Velocita
(TAV) issued the first Euro400m worth of notes under a Euro1bn
Asset Backed Euro Medium Term Note programme out of the special
purpose vehicle Cartesio. The deal represents a new long term
funding source for TAV, which is in the midst of a major expansion
of its high speed rail network across Italy.
The deal was co-arranged by Merrill Lynch International and DePfa Bank Europe, which provides long term funding to public sector entities. DePfa acted as lead manager, with Rheinhyp Bank Europe as manager, while Merrill was sole bookrunner for the note offering.
The notes issued through Cartesio are secured on a Euro1bn loan made to TAV by the Milan branch of Merrill Lynch Capital Markets. Because the notes replicate the features of the underlying loan, future drawings under the loan can be funded by additional tranches of notes. These additional note offerings are expected to take place between June and October of this year.
?TAVs obligations are guaranteed by Ferrovie dello Stato, and FS's guarantee in favour of TAV is in turn guaranteed by the Republic of Italy under Law Number 78 of 1994, therefore ultimate recourse is to the Italian state,? says Justin Fox, a director of Merrill Lynch's Structured Finance Group in London.
?The aim of the deal was to make use of the capital markets and attract different investors, and TAV achieved good pricing at Euribor plus ten basis points ? he says.
According to Fox the floating rate notes were primarily sold to bank buyers, with one attraction being that the notes had a zero risk weighting attached to them by the Bank of Italy.
Since the noteholders ultimately have recourse to the Italian state, the notes carry the same rating as the Republic of Italy, and were thus rated AA minus by Fitch. The notes mature in 2026, and have an average life of 16.13 years, making them a long term source of funding that is well suited to infrastructure projects.
The proceeds will primarily be used to finance the development of the Turin-Milan-Naples line of the high speed railway. The TAV network will eventually cover 1300 kilometres, with most of the track upgrades and development concentrated around Italy's fastest growing cities, Rome, Naples, Turin, Florence, Bologna, Genoa and Venice.
The financing was signed on January 18, when officials from Ferrovie dello Stato, and its high speed rail subsidiary TAV were in London. The FS was re-organised as a stand alone corporation 1992, but is still wholly owned by the Ministry for the Treasury of the Italian Republic.
?We are very pleased with the success of this transaction and the opportunity to work with TAV,? commented Anne Butler, Head of Business Development at DePfa Europe in Dublin.
?Italy has been one of the most active securitisation markets, and growth has exceeded expectations following implementation of Law Number 130,? says Butler. ?The launch of this programme should open up fresh opportunities for the Italian securitisation market, and also reinforces DePfa Europe's role as a leading provider of financial services for public sector entities.?
Law Number 130 was passed in 1999, and resolved a number of the legal and tax problems relating to securitisation in Italy. By selling the notes out of an existing SPV such as Cartesio, issuers can reduce some of the legal and structuring work which would have to be done if they launched their own deal via their own SPV.
In fact Cartesio was used to launch a second unrelated deal in mid February. In this second deal Euro1bn worth of notes were sold, backed by a Euro1bn loan from Cartesio to the Region of Lazio. The regional government is the primary obligor of the loan, but anticipates that it will meet its loan repayments out of money owed to it by the Republic of Italy to make up deficits in the healthcare sector.
But in this deal the repayments are fully an obligation of the Region of Lazio, and so the notes received the same A plus rating as Lazio, as opposed to the AA minus rating of the Republic of Italy. This paper was also marketed heavily at bank buyers, and there was strong demand from Italy, Germany, Ireland and the UK.
Lazio is one of the first regions in Europe to use the structured finance market, and the first in Italy. Other regions in Italy are already looking at deals.
The European investor base for structured finance paper has become much broader and deeper over the past couple of years, spurred by the arrival of the single currency, and issuance out of vehicles such as Cartesio is likely to be viewed as an attractive source of funding for other Italian infrastructure projects, or the financing requirements of the regions.
The deal was co-arranged by Merrill Lynch International and DePfa Bank Europe, which provides long term funding to public sector entities. DePfa acted as lead manager, with Rheinhyp Bank Europe as manager, while Merrill was sole bookrunner for the note offering.
The notes issued through Cartesio are secured on a Euro1bn loan made to TAV by the Milan branch of Merrill Lynch Capital Markets. Because the notes replicate the features of the underlying loan, future drawings under the loan can be funded by additional tranches of notes. These additional note offerings are expected to take place between June and October of this year.
?TAVs obligations are guaranteed by Ferrovie dello Stato, and FS's guarantee in favour of TAV is in turn guaranteed by the Republic of Italy under Law Number 78 of 1994, therefore ultimate recourse is to the Italian state,? says Justin Fox, a director of Merrill Lynch's Structured Finance Group in London.
?The aim of the deal was to make use of the capital markets and attract different investors, and TAV achieved good pricing at Euribor plus ten basis points ? he says.
According to Fox the floating rate notes were primarily sold to bank buyers, with one attraction being that the notes had a zero risk weighting attached to them by the Bank of Italy.
Since the noteholders ultimately have recourse to the Italian state, the notes carry the same rating as the Republic of Italy, and were thus rated AA minus by Fitch. The notes mature in 2026, and have an average life of 16.13 years, making them a long term source of funding that is well suited to infrastructure projects.
The proceeds will primarily be used to finance the development of the Turin-Milan-Naples line of the high speed railway. The TAV network will eventually cover 1300 kilometres, with most of the track upgrades and development concentrated around Italy's fastest growing cities, Rome, Naples, Turin, Florence, Bologna, Genoa and Venice.
The financing was signed on January 18, when officials from Ferrovie dello Stato, and its high speed rail subsidiary TAV were in London. The FS was re-organised as a stand alone corporation 1992, but is still wholly owned by the Ministry for the Treasury of the Italian Republic.
?We are very pleased with the success of this transaction and the opportunity to work with TAV,? commented Anne Butler, Head of Business Development at DePfa Europe in Dublin.
?Italy has been one of the most active securitisation markets, and growth has exceeded expectations following implementation of Law Number 130,? says Butler. ?The launch of this programme should open up fresh opportunities for the Italian securitisation market, and also reinforces DePfa Europe's role as a leading provider of financial services for public sector entities.?
Law Number 130 was passed in 1999, and resolved a number of the legal and tax problems relating to securitisation in Italy. By selling the notes out of an existing SPV such as Cartesio, issuers can reduce some of the legal and structuring work which would have to be done if they launched their own deal via their own SPV.
In fact Cartesio was used to launch a second unrelated deal in mid February. In this second deal Euro1bn worth of notes were sold, backed by a Euro1bn loan from Cartesio to the Region of Lazio. The regional government is the primary obligor of the loan, but anticipates that it will meet its loan repayments out of money owed to it by the Republic of Italy to make up deficits in the healthcare sector.
But in this deal the repayments are fully an obligation of the Region of Lazio, and so the notes received the same A plus rating as Lazio, as opposed to the AA minus rating of the Republic of Italy. This paper was also marketed heavily at bank buyers, and there was strong demand from Italy, Germany, Ireland and the UK.
Lazio is one of the first regions in Europe to use the structured finance market, and the first in Italy. Other regions in Italy are already looking at deals.
The European investor base for structured finance paper has become much broader and deeper over the past couple of years, spurred by the arrival of the single currency, and issuance out of vehicles such as Cartesio is likely to be viewed as an attractive source of funding for other Italian infrastructure projects, or the financing requirements of the regions.
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