Securitization: Lazio gets biggest ever revolving commitment

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Investment banks Nomura and Mediobanca are about to close Italy’s largest ever securitization of regional healthcare receivables, according to market sources in Italy and London. “This is the largest ever deal of its type, and it has unique structural features that have never been used before in this asset class,” says a source close to the €2 billion transaction.

By John Ferry

The banks are believed to have jointly arranged a sophisticated investment structure that effectively gives Lazio, the region around and including Rome, a revolving credit facility that is also designed to give creditors security on future payments. Nomura and Mediobanca would not comment on the transaction but the source says investors are being asked to buy a type of three-year variable rate note – a partly paid note structure that will be sold with a commitment to payment but with unknown actual monthly payout amounts. “It’s a type of revolving commitment. You get a limit of how much you will lend or commit over time, and every month you will put in capital that will then be repaid according to a schedule. The total limit is known, but the monthly amounts are not known,” says the source.

Softer debt impact

The deal should enable Lazio’s administrators to manage more effectively their asset-liability mix. By restructuring short-term payouts to healthcare vendors to bring them more in line with the financial flows into its budget, the region should soften the impact of accumulating debt on instant cash needs.

This is not the first securitization of healthcare receivables – money owed by Italy’s regional health authorities to local healthcare providers – performed by Nomura for Lazio. In March the bank put together a €115 million deal known as Kimono that was the first asset-backed, zero-coupon note structure launched in the Italian market. The receivables in this case were originally due from Lazio’s health authorities to 38 hospitals and clinics in the region represented by two associations: Aris (Associazione Religiosa Istituti Socio-Sanitari) and FOAI (Federazione degli Organismi per l’Assistenza alle persone disabili). The deal was designed to enable the region to meet payments due to Aris and FOAI but also to protect the regional administration from the negative impact of delayed payments on healthcare expenditure. Nomura also led and arranged a 2003, €655 million securitization of receivables for the autonomous region of Sicily.

Lazio has eagerly adopted securitization methods in the past two to three years. In a 2004 deal known as Atlantide, arranged jointly by Banca Intesa and UBS, the region securitized €518 million of healthcare receivables. A follow-up deal arranged by the same banks for €641 million – Atlantide 2 – closed in May.

“The securitization of healthcare receivables is a very hot topic right now, and we know more deals are on the way,” says Giancarlo Campagnani, Milan-based head of rating advisory and local authorities debt origination at Banca IMI.

Shared responsibility

Responsibility for healthcare provision in Italy is shared between the regions and the central government. This results in regional administrators having to negotiate funding levels with the national government annually. However, in reality the regions tend to overspend the allocated cash and then ask for additional money to make up for deficits. The deficit problem has been exacerbated in recent years because of slow economic growth, and the EU’s Stability and Growth Pact, which attempts to restrict government deficits to 3% of annual GDP, has drawn increasing attention to the issue. “In the past it was not so important to make timely payments to the [healthcare] suppliers. But now, under the constraints of the EU rules, it is becoming more of an issue,” says Mauro Crisafulli, a Milan-based local government analyst with rating agency Moody’s.