On April 24, 2014, it was reported that Italy's two largest banks, Intesa Sanpaolo SpA ("Intesa") and Unicredit SpA ("Unicredit"), which combined, control a third of the Italian loan sector, unveiled a plan to sign an agreement with U.S. private equity house, Kohlberg Kravis Roberts, and U.S. restructuring adviser, Alvarez & Marsal, to create a special purpose vehicle to pool and manage around EUR 2bn distressed loans and make them easier to sell, if necessary.

Intesad has recently been in talks with distressed debt investors to sell some of the EUR 27bn of non-performing loans that have been placed in its internal bad bank.

Destination Italy?

In December 2013, the Italian Government launched Destinazione Italia consisting of around 50 measures to foster inbound investment and to increase Italian companies' competitiveness. As part of these measures, Article 12 of Decree No. 145/2013 (the "new law") provides key changes to the Italian Securitisation Law (Law No. 130 of 30 April 1999) which may result in favourable options for loan traders acquiring Italian debt in the secondary market.


The new law opens up the possibility for non-bank investors to acquire Italian loans through an Italian securitisation special purpose vehicle ("SPV") (without the intermediation of a bank), provided the structure meets certain criteria.

Italian securitisation structure requirements:

  • A medium-long term secured loan is extended by an Italian bank or by the Italian lending office of a foreign bank.
  • The loan remains on the books of the lending bank for a reasonable period of time before it is transferred to the securitisation SPV.
  • No commitment in relation to the capital markets take-out is given by the ultimate investors prior to the disbursement of the loan, i.e. the bank faces full syndication risk.

If such requirements are satisfied and the transaction properly qualifies as a securitisation from an Italian legal and tax perspective:

  • The bank loan and the related security package (including mortgages) can be transferred to a securitisation SPV which funds the purchase of the loan (single loan or on a portfolio basis) through the issue of asset-backed notes purchased by the ultimate non-bank investors.
  • Amounts due under the notes may be paid to any "white list" country (i.e. those listed in the Ministerial Decree of 4 September 1996 as amended) investor with no withholding tax, and no mortgage tax is applicable upon transfer of a mortgage bank loan to the securitisation SPV.
  • In addition, as long as the securitisation SPV issues a single tranche of notes, from a prudential supervision perspective the original lending bank is not required to retain any portion of either the loan or the notes.
  • Notes issued by the SPV can be subscribed or purchased by one single qualified investor without any re-characterisation risk as a loan.


Banking Licence required - extending credit (including making loans, purchasing receivables and issuing guarantees) in Italy is a restricted activity which can only be carried out by domestic Italian financial institutions or foreign financial institutions licensed by Banca D'Italia or pursuant to EU legislation. Prior to the new law, non-bank investors entered into indirect arrangements or participations to achieve exposure to Italian borrowers, but an LMA Participation is not a panacea, and risk remains of regulatory and tax authority "look-through".

IBLOR Structures - historically lending by non-bank entities was by way of "non-transparent Italian Bank Lender of Record" structures under which an Italian bank lends directly to the Italian borrower and unlicensed participants provide cash-collateralised guarantees to the bank (e.g. SEAT) or by way of "transparent Italian Bank Lender of Record" structures under which participants are generally subject to withholding tax, unless grossed-up by the Borrower.

Tax - interest on loans paid by an Italian company to non-Italian resident lenders is generally subject to 20% withholding tax (unless a double taxation treaty applies, in which case the rate may be reduced). As described above, there is a withholding tax exemption for interest on bonds issued by SPVs operating under the Securitisation Law to non-resident lenders (including institutional investors not subject to tax - e.g. funds or trusts) resident in "white list" countries.

Trust and Parallel Debt Structures - not expressly recognised or tested under Italian law. Italian law loans commonly use a mandatario con rappresentanza which exercises the rights of the lenders under the loan and security documents as agent. A separate security agent can enforce rights on behalf of the lenders (although the security itself must still be granted directly to the lenders).

Subordination of Shareholder loans - a new lender may be subordinated to all other debts of the Borrower if the loan it acquires was granted by an existing shareholder of the borrower at a time when (i) the company's indebtedness was excessively high compared to shareholders' equity, or (ii) the company's financial situation was such that a shareholders' contribution would have been reasonable under the circumstances.

Claw-back Remedies - payments may be clawed-back by a receiver in bankruptcy should the Borrower become insolvent within one year from the date on which the relevant payment is made. Such equitable subordination may be disapplied in part in relation to new loans provided in the context of specific restructuring procedures under Italian legislation. Payments made to a securitisation SPV are not subject to claw-back by operation at law.