Italian Government Completes €398 Million Sale Leaseback of 75 Property Portfolio

Standard & Poor's Web Site - June 12, 2006

Standard & Poor's has issued a presale report on Patrimonio Uno CMBS S.r.l., a €398 million asset-backed floating-rate notes transaction backed by a senior loan originated by Banca Intesa SpA, Banca Nazionale del Lavoro SpA (BNL), and Morgan Stanley Bank International Ltd. in December 2005. The purpose of the loan was to finance the acquisition of 75 commercial properties in Italy, 53 office buildings and 12 police training centers, from the Italian Ministry of Economy and Finance (MEF) and other public entities. Of the acquisition price, 60% was funded by the loan, while the balance was funded through equity, via the issuance of fund units that have been sold to institutional investors.

The underlying portfolio securing this transaction can be divided into two distinct groups: portfolio A and portfolio B. The portfolio A properties comprise assets that are subject to a lease agreement entered into between the fund and Agenzia del Demanio (ADD). ADD has subsequently assigned the use of the properties to other government entities. Portfolio B comprises properties leased to a mixture of public and private tenants.

The term of the lease to ADD (75% by rental income) is for nine years, expiring in December 2014, with a lease extension on an all-or-nothing basis for the properties included within portfolio A for a further nine years. The term of the loan/note issuance is for 12 years, with a potential extension for a further three years. Standard & Poor's has considered the likelihood of ADD vacating all properties on expiry of the first lease term, and is comfortable that there are sufficient incentives in the ADD lease agreement to ensure the lease will be renewed for a further nine years.

At closing, the aggregate of rents received will amount to €45.192 million, €33.650 million from portfolio A and €11.542 million from portfolio B. Under the ADD lease agreement, rent will be paid semiannually in arrears on the 15th day of June and December. The contracted rent will increase yearly by 75% of the ISTAT (consumer price index) from the beginning of the second year of the lease.

This is a "sell-down" portfolio and it is anticipated that the loan balance, and the notes outstanding, will reduce as the properties are sold. Sales are expected to start from the beginning of 2008 onwards. In general, portfolio A properties are assumed to be sold only after the eighth year from closing, which is after the portfolio A tenant's lease agreement has expired in December 2014.

Standard & Poor's has been able to de-link the rating on the tenant by focusing on the assets and their ability to generate income over the life of the notes, and through refinance from current or subsequent tenants. Sphere: Related Content