The scheme tests the waters for a much bigger transaction planned by Italy's third biggest bank, Monte dei Paschi di Siena (>> Banca Monte dei Paschi di Siena SpA), which must offload 9.2 billion euros of soured debts to avert the risk of being wound down.

Popolare di Bari said its bad loans had been transferred to a securitisation vehicle which in turn bundled them up in three tranches of asset-backed notes to be placed on the market.

The structure of the deal indicates an average sale price at 31 percent of the loans' gross value -- in line with the 33 percent level targeted by Monte dei Paschi's rescue plan.

JPMorgan (>> JPMorgan Chase & Co.), which is also playing a leading role in the Monte dei Paschi bailout, structured the transaction for the mid-sized bank based in the southern city of Bari.

The senior, or less risky, tranche has been rated investment grade BBB (High)/Baa1 by agencies DBRS and Moody's for 126.5 million euros, allowing it to benefit from the state guarantee scheme, known as "Gacs".

The scheme, which Rome announced after months of negotiations with the European Union, is part of Italy's efforts to help its banks get rid of 360 billion euros of problematic debts, a third of the euro zone's total.

But it only applies to securities with an investment grade rating -- the ones that are by definition easier to sell.

The mezzanine tranche in the Popolare di Bari sale, for 14 million euros, was rated B(High)/B2, while the junior -- or riskiest -- portion, for 10 million euros, did not get a rating.

POSITIVE SIGNS

Mediobanca Securities said the deal offered positive signs for Monte dei Paschi, noting the senior tranche, with a coupon of 50 basis points on top of the 6-month Euribor rate, accounted for more than 80 percent of the securities to be sold - versus forecasts of 50-70 percent.

"This is the first operation of this kind and the only reference for the upcoming monster non-performing loans spin-off from Monte dei Paschi," Mediobanca said.

"Every securitisation should look different depending on the underlying assets and on the ratings given, but (the terms)...are fairly bullish for banks and a beat to market expectations."

The mezzanine tranche's coupon was set at 6-month Euribor plus 6 percent. Mediobanca said the junior tranche could fetch a double-digit return.

The bank said it planned to sell another 300 million in bad loans by year end in a similar operation.

The Monte dei Paschi deal, announced in late July and to be completed by the end of the year, envisages the sale of up to 6 billion euros of bad loans in the senior tranche.Recently created bank bailout fund Atlante will buy the mezzanine tranche for 1.6 billion euros. The junior portion, covering another 1.6 billion euros, will be distributed to the bank's shareholders.

The plan also includes a 5 billion euro cash call.

($1 = 0.8966 euros)

(Reporting by Silvia Aloisi; Editing by Keith Weir)

By Silvia Aloisi