The Italian Government is trying to shake up the lending market by Law Decree No. 91 of 24 June 2014 (hereinafter, “Decreto Competitività”), which came into force on 25 June 2014 and was converted into Law No. 116 of 11 August 2014 (hereinafter, “Conversion Law”).
Along the lines of other recent statutory provisions (with a focus on Law Decree No. 145/2013, so-called “Decreto Destinazione Italia”), the Decreto Competitività intends to boost access by Italian businesses to the huge pools of liquidity currently available in financial markets.
Some of its key provisions1 are the following:
Private placement – Securities owned by Collective Investment Undertakings (“CIUs”) and securitisation companies
- the private placement of bonds, financial bills of exchange and similar securities is facilitated. Indeed, even if such securities are not traded on regulated markets nor issued by the so called “Large Issuers” (i.e. banks and listed companies), if they are held by qualified investors2, the substitute tax regime under Legislative Decree No. 239 of 1 April 1996 on interest (and other proceeds) for this kind of transactions shall apply, instead of the 26% withholding tax under Article 26, paragraph 1, of Presidential Decree No. 600 of 29 September 1973;
- the same regime (substitute tax regime) shall apply to interest (and other proceeds) accrued on bonds, financial bills of exchange and similar securities paid to:
- CIUs, set up in Italy or in another EU Member State, (a) which invest more than 50% of their assets in such securities and (b) whose investors are solely qualified investors; or
- securitisation companies (a) which invest more than 50% of their assets in such securities and (b) if the notes issued by such companies are held by qualified investors;
New lending entities
- without prejudice to the principle of reservation applying to banking activities (as confirmed in the Technical Report attached to the Decreto Competitività), also insurance undertakings, SACE, securitisation companies and CIUs3 are allowed to finance businesses4, provided that they comply with the Bank of Italy’s Central Credit Register (CCR) regime5 and provided that certain conditions are met6.
Specifically, the Decreto Competitività provides as follows:
- the conditions applicable to lending carried out by insurance undertakings must be better detailed by IVASS (Italian insurance supervisory authority). In any event, IVASS will be required to take into account, inter alia, the following principles7: (A) borrowers shall be selected by a bank or a financial intermediary enrolled in the register under Article 106 of Legislative Decree No. 385 of 1 September 1993 and (B) the bank or financial intermediary mentioned sub (A) shall retain a significant economic interest in the loan transaction up to its maturity, i.e. an interest equal to at least 5% of the total amount of the loan, which may also be transferred to other banks or financial intermediaries. Such conditions shall not apply to insurance undertakings expressly authorised by IVASS to operate autonomously;
- securitisation companies shall be entitled to lend money, provided that (A) borrowers are selected by a bank or a financial intermediary enrolled in the register under Article 106 of Legislative Decree No. 385 of 1 September 1993, (B) the notes issued by securitisation companies to finance such lending are held by qualified investors, and (C) the bank or financial intermediary mentioned sub (A) retains a significant interest in the loan transaction, as better specified by the Bank of Italy.
- an obstacle for Italian businesses to receiving loans from non-resident entities8 is now removed. Indeed, 26% withholding tax under Article 26, paragraph 5 of Presidential Decree No. 600/1973 shall not apply to interest (and other proceeds) arising from medium/long term facilities granted by lending institutions, insurance companies and CIUs (in relation to the latter, exemption is allowed if they are not “leveraged”). As a matter of fact, the tax burden relating to such facilities was used to be transferred to borrowers by virtue of the “gross-up” mechanisms included in loan agreements;
Further extension of the objective and subjective scope of the substitute tax regime applying to medium/long term facilities
Syndicated loans and transfer of receivables processes are facilitated, on two different grounds:
- objectively: the assignment of facilities benefiting from the substitute tax regime under Articles 15 et seq. of Presidential Decree No. 601 of 29 September 1973 (0.25% to be paid in one shot) and any subsequent assignments of the relevant receivables or contracts, together with the transfer of the relevant guarantees, shall fall within the scope of substitute tax;
- subjectively: the benefit of the substitute tax regime is extended also to medium/long term facilities granted by securitisation companies, insurance companies and CIUs, in accordance with the recent statutory provisions that have (a) extended the substitute tax regime to the issuers of certain types of bonds and (b) made such regime optional (instead of mandatory);
Reduction of PV FiT
Other measures seem to reduce, rather than increase, support to businesses and the production system.
In particular, Article 26 of the Decreto Competitività provides for the reduction of the public feed-in tariff (FiT) for photovoltaic (PV) plants with a nominal capacity exceeding 200 kW.
PV plant owners benefiting from such tariffs will be required to choose one of the following three alternative reduction options (and then to notify GSE (Energy Management Authority) thereof by 30 November 2014): (a) the FiT tariff will be payable by GSE over an (extended) period of 24 years since the plants’ start of operations, with an automatic reduction as set out in the Annex to the Decreto Competitività; (b) the FiT will be maintained for 20 years, subject to a rescheduling, so that it will be reduced by a certain percentage during an initial period and then increased during the second period in a measure equal to the previous reduction; (c) the FiT will be payable for 20 years and discounted to the extent of the originally-awarded tariff – as from the date of entry into force of the Conversion Law - over the residual incentive tariff period, as follows: (i) 6%, for PV plants with a nominal capacity between 200 kW and 500 kW; (ii) 7%, for PV plants with a nominal capacity between 500 kW and 900 kW; and (iii) 8%, for PV plants with a nominal capacity of over 900 kW.
For those operators not exercising choice as above, the FiT will be automatically reduced according to option (c).
In any event, even this provision may in the end improve lending to businesses, also by virtue of the other provisions of the Decreto Competitività (which, as mentioned above, widens the number of potential lenders, including non-Italian lenders to Italian businesses) and, at the same time, favour possible processes for the restructuring of receivable portfolios in the lending sector.