On December 13, 2013 the Italian Government approved Law Decree Destinazione Italia (the “Destinazione Italia Decree”), aimed at further facilitating ﬁnancing transactions for Italian issuers1 .
The most signiﬁcant changes introduced by the Destinazione Italia Decree consist of the following six points:
- the lower substitute tax (imposta sostitutiva)2 now extended to the security package for corporate bonds (previously available only for bank loans);
- the privilegio speciale (akin to a ﬂoating charge) now permitted to secure corporate bonds (previously available only for bank loans);
- banks now can issue new collateralized bonds (as opposed to covered bonds) with a broad range of assets as collateral;
- withholding tax exemption on interest payments of bonds issued by Non-Listed Companies3 now extended to bond funds invested in by Qualiﬁed Investors4;
- investment in corporate bonds and shares of certain types of investment funds now facilitated for insurance companies and pension funds; and
- securitization regime5 now extended to corporate bonds acquired by SPVs and simpliﬁcation of the securitization process.
These new provisions partially amend the Decreto Sviluppo6. See our prior Client Alerts on the subject published on December 2012 and June 2012.
The lower substitute tax (imposta sostitutiva) extended to the security package for corporate bonds
The Destinazione Italia Decree extends the favourable substitutive tax regime (imposta sostitutiva) to bond issuances and their security packages. The imposta sostitutiva was previously only available in bank loan transactions. The tax will be equal to 0.25% of the aggregate principal amount of the placed bonds. Current general tax rules apply to security in Italy (which may be subject to registration tax, stamp duty, mortgage tax and/or land registry tax) and can range from Euro 168 to 3% of the reference amount7. The imposta sostitutiva will replace all such taxes and will apply also in the event of full or partial transfer, amendment, replacement and/or cancellation of a bond.
We expect the lower tax cost of providing security to have a positive effect on all bond issuances that are secured, including in both the investment and non-investment grade space.
The privilegio speciale permitted to secure corporate bonds
The Destinazione Italia Decree extends the availability of the privilegio speciale8 to bonds with a maturity longer than 18-months to the extent such bonds are acquired only by Qualiﬁed Investors.
The privilegio speciale, which was originally only available to secure bank loans, now allows bonds to beneﬁt from a security interest, which is similar to a ﬂoating charge. The ﬂoating charge may be over any corporate assets such as plant, machinery and inventory.
We expect the availability of greater assets for secured transactions will have a positive effect on all bond transactions that are secured, including in both the investment and non- investment grade space.
Banks can issue new collateralized bonds with a broad range of assets as collateral
The Destinazione Italia Decree amends the regime of collateralized bank bonds (as opposed to covered bonds), which may be collateralized, inter alia, with (i) corporate bonds issued by Non-Listed Companies, (ii) securities issued in a securitization that has corporate bonds as underlying assets, and (iii) receivables of small and medium companies (SMEs)9.
We expect this change to encourage and facilitate banks to invest in bonds and receivables of Italian corporates, thereby providing additional liquidity to these companies. In addition, we expect this change to help broadening the market for collateralized bond transactions issued by Italian banks.
Withholding tax exemption on interest payments of bonds issued by Non-Listed Companies extended to bond funds invested in by Qualiﬁed Investors
In 2012 Decreto Sviluppo extended the ‘listed bond exemption’ to Italian Non-Listed Companies enabling such companies to issue corporate bonds and beneﬁt from an exemption from withholding (provided they were listed on a Qualiﬁed Exchange and subject to certain other certain limitations).
The Destinazione Italia Decree now extends the withholding tax exemption to bond funds that purchase corporate bonds if the investment funds (i) are owned by Qualiﬁed Investors and (ii) a majority of the investments funds’ assets are invested in bonds.
This change is aimed at achieving withholding tax neutrality for investments by investment funds in corporate bond issues by SMEs. We expect it to broaden and deepen the corporate bond market for Italian Non-Listed Companies.
Investment in corporate bonds and shares of certain types of investment funds facilitated for insurance companies and pension funds
The Destinazione Italia Decree amends legislation establishing the types of instruments which are eligible for insurance companies’ statutory technical reserves and investment limits for pension funds. Through these changes, investment is facilitated for insurance companies and pension funds in corporate bonds, (ii) securitized securities having as underlying corporate bonds, and (iii) shares of investment funds mainly investing in corporate bonds. This applies whether or not the bonds or securities are rated or listed on a Qualiﬁed Exchange.
Additional legislation10 is expected to establish limits for investments by insurance companies and pension funds in corporate bonds. These changes are aimed at encouraging investments in corporate bonds by insurance companies and pension funds.
We expect these changes to broaden and deepen the liquidity of the Italian corporate bond market for Non-Listed Companies.
Securitization regime extended to corporate bonds acquired by SPVs and simpliﬁcation of the securitization process
The Destinazione Italia Decree extends, subject to certain exceptions, the applicability of the Securitization Law to corporate bonds acquired by securitization SPVs11 (other than hybrid and convertible bonds or to equity instruments (titoli rappresentativi del capitale sociale)). The Destinazione Italia Decree also introduces several rules aimed at eliminating burdensome formalities that were common in securitizations in Italy, thereby increasing transaction efﬁciency.
Amongst the changes introduced to the securitization process, the following are the most signiﬁcant:
- the segregation of an SPV’s underlying assets has been extended to bank accounts opened by servicers and sub-servicers, thereby putting such assets out of reach of the estate of insolvent servicers or sub-servicers;
- the requirement for a block transfer of receivables (cessione in blocco) pursuant to article 58 of the Consolidated Banking Act has now been abolished. As a result, formalities applicable under Factoring Law12 would now also apply to transfers of receivables to an SPV and the principle set out in article 1248 of the Italian Civil Code now expressly applies to securitization transactions 13;
- special provisions regulating the transfer of receivables vis-à-vis public entities14 have also been abolished and such transfers are now treated in the same way as transfers between private entities;
- where securitized securities are reserved for Qualiﬁed Investors, such securities may also be acquired by a single investor;
- prepayments of securitized receivables are no longer subject to article 65 of the Bankruptcy Law15; and
- where securitizations are made by transferring receivables to an investment fund, (i) the management company may be appointed as the servicer of the transaction, (ii) the block transfer of receivables (cessione in blocco) pursuant to article 58 of the Consolidated Banking Act now applies, and the more favorable tax regime (imposta sostitutiva) now applies to such transfers (as they already do to transfers of receivables to securitization SPVs).
Finally, the Decree also simpliﬁes the formalities applicable to the transfer of receivables pursuant to the Factoring Law in order to obtain the certiﬁed date (data certa) of a payment and the effectiveness of such transfers vis-à-vis third parties by providing that for this purpose only the cash record in the transferor’s account is required.
We expect that the Italian debt capital markets will beneﬁt from the extension of the special securitization regime to allow for the securitization of corporate bonds. Once again, such changes should broaden and deepen the liquidity of the Italian corporate bond market.