On 27 January 2016 the Ministry of Finance issued a press release announcing a new measure that the Italian Government is going to adopt in order to facilitate the selling off of non-performing loans ("NPLs") by Italian banks.
The measure provides for the issue of State guaranties in connection with securitization transactions put in place by Italian banks where the underlying assets are receivables deriving from NPLs. In particular, the Italian State will guarantee only the senior tranches of notes issued within the securitization (i.e. those less exposed to the risk of losses deriving from the non repayment of the receivables), whilst junior and mezzanine tranches shall be payable only after full repayment of senior tranches covered by the State guaranty.
Banks selling NPLs within securitization transactions can apply for the guaranty and shall pay to the Ministry of Treasury an annual fee to be calculated as a percentage of the guaranteed amount on an annual basis. The fee will be at a market price and will be calculated on the basis of CDS of Italian issuers having a risk grade equal to that of the guaranteed notes. The fee will increase over the period on which the notes will remain outstanding, also in order to incentivize the realization of the receivables. It is worth noting that the EU Commission has already stated that such measure does not qualify as a State aid.
The guaranty shall be issued only if the notes have already obtained a rating equal to, or higher than the Investment Grade by an independent rating agency included in the list of rating agencies that are accepted by the ECB, and on the basis of criteria such as the analysis of the underlying receivables and of the cash flaws associated to the guaranteed notes, and the percentage that is invested in the junior/mezzanine tranches. The recovery activity shall be entrusted to a servicer that is independent from the bank.
The forthcoming measure comes together with those that have been recently approved for the purposes of selling off NPLs by Italian banks (e.g. simplification of enforcement procedures and enhancement of debt restructuring procedures).