LONDON, April 5 (IFR) - The desperation of the Hellenic Republic has had an unexpected upside for some ABS noteholders. Those holding the notes of a securitisation backed by Greek lottery receivables will be paid in full nearly a year ahead of maturity - and will even get an extra fee if they vote in favour of allowing early redemption by an early-bird deadline.
The Greek government wants to privatise its state lottery provider, and in order to do so it needs to extract the security (the lottery receivables) from the securitisation structure. The only way to do this is to pay up.
Greece was a heavy user of structured finance as it struggled to push debt-to-GDP closer to the Maastricht criteria so that it would be accepted in the euro. But it was not the only one, and there could still be privatisation upside for other noteholders if other European governments follow the Greek example.
Greece received three bids for the national lottery last December - from an OPAP-led consortium, Austrian Lotteries, and Sisal - with the sale estimated to raise EUR400m-EUR600m. The three bidders moved through to the next stage of the process in mid-March.
The Greek government, to complete the privatisation, is offering to repay those holding the notes - from a vehicle called Ariadne SA - at par. To be paid in full, investors must agree before April 21 to waive early redemption and other events of default clauses that may be triggered by the process. Credit Suisse is advising the Greek government on the privatisation, and is solicitation agent for the Ariadne vote.
Greece is even offering a 25bp incentive for bondholders to agree by April 12.
Just EUR74m of the bonds are outstanding and they barely trade, but traders suggested that a reasonable price before the move to repay them early would have been around 70 cents of par. STRUCTURE WORKS AS PLANNED
Moody's downgraded Ariadne from Caa1 to Ca in mid-March, leaving it one notch above the Greek sovereign, while S&P ranks it CC.
The Greek sovereign guarantees all the payments to the notes, which gives the rating agencies and investors alike a reason for scepticism, but the transaction structure has functioned as planned throughout the life of the bonds. Any shortfalls in lottery receivables have been covered by the transaction liquidity facility.
Ariadne's EUR74m of outstanding notes will barely scratch the surface of the Greek debt burden, but holders will breathe a sigh of relief, noting in passing that in order to get its hands on privatisation proceeds the Greeks will be taking out the Ariadne debt paying Libor plus 20bp with financing at plus 150bp from the eurozone bail-out, or 3.65% - the weighted average coupon of the new Greek bonds.
Ariadne was launched in December 2000, before EuroStat started to force European states to consolidate their securitisations into national accounts.
Before that move, the Greek government had embraced securitisation enthusiastically, securitising payments for using national airspace (Aeolus) and mortgages from public funds to civil servants (Hellenic Securitisation). It even sold a deal called Atlas backed by future flow payments from the European Union to the Greek government.
Like Greece, Italy produced a flow of sovereign securitisations in the early 2000s, most of which have matured. But it has its own ambitious privatisation programme in prospect and remaining bondholders will be hoping to be taken out Ariadne-style.
FIP Funding and Patrimonio Funding (backed by state offices, police training academies and other government properties) are still outstanding and trading well below par. A EUR5m clip of FIP Funding A2 appeared on a bid list at the end of March, for example, at a 79.75 cash price, giving a 550bp discount margin.
If the Italian government opts to sell off these state buildings as part of its privatisation programme then, like the Greek government, it will have to redeem the securitisations or pay bondholders to waive their rights.
One Italian ABS trader explained that any privatisations would be likely to be outright sales rather than securitisations, given the selective and shallow investor base for European CMBS.
An Italian DCM banker was more optimistic about the prospects for new sovereign securitisations, but pointed out that the Italian government would be unlikely to act before the autumn. It is reviewing and valuing state assets up to July, so any privatisation or disposal plan is unlikely to come before then.
A government in better financial shape than Greece might also have more flexibility to offer bondholders less than par. Ariadne noteholders have benefited from being the only holders of something the Greek government desperately wants, but where a state securitisation is backed by something readily replaceable, such as an office building, bondholders should be ready for a more balanced discussion. (Reporting By Owen Sanderson, editing by Matthew Davies)