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Structuring a lending transaction

General Who are the active providers of secured finance in your jurisdiction (eg, international banks, local banks or non-bank financial institutions)? International banks, local banks and non-bank financial institutions that are authorised to lend in Italy.

Is well-established market-standard facility documentation used in your jurisdiction for secured lending transactions? Yes – Loan Market Association (LMA) documentation is widely used, adapted for the Italian market. The LMA planned to introduce specific Italian standard LMA documentation, but has not yet done so.

Syndication Are syndicated secured loan facilities typical in your jurisdiction? Yes.

How are syndicated facilities normally structured? Does the law in your jurisdiction allow a facility agent to be appointed to act on behalf of other banking syndicate members? In the case of syndicated loans, an agent may be appointed to enforce rights on behalf of the participating banks. However, all security interests must still be granted in favour of each syndicate bank (including on the transfer of a participation to a new lender). If the agent’s role includes activities that are regulated in Italy (eg, accepting deposits, arranging deals in investments, advising on investments, dealing in investments as a principal or agent, safeguarding and administering investments or managing investments), then the agent must also be regulated. There is a risk of a conflict of interest if the agent acts as a security agent for more than one group of creditors, or is both security agent and a creditor; accordingly, the agent must have Chinese walls in place so that information it receives as a creditor is kept separate from information it receives as an agent.

Does the law in your jurisdiction allow security and guarantees to be held on trust by a security trustee for the benefit of the banking syndicate? Trusts are not regulated under Italian law, but trusts governed by a foreign law should be recognised by the Italian courts in accordance with the Hague Convention 1985. Trustees can be either Italian resident entities or foreign entities operating in Italy. Both have fiduciary duties governed by the foreign law applicable to the trust. However, the agent concept is recognised under Italian law so that in syndicated loans governed by Italian law, a bank commonly acts as an agent for the other lenders instead of acting as trustee.

Special purpose vehicle financing Is it common in secured finance transactions for special purpose vehicles (SPVs) to be used to hold the assets being financed? Would security generally be given over the shares in the SPV or would lenders require direct asset security? SPVs are commonly used in structured finance transactions; less so in more vanilla secured financings. Typically, a mixture of security is given, depending on the underlying assets and the type of financing.

Interest Is interest most commonly calculated by reference to a bank base rate or a market standard variable reference rate (eg, LIBOR, EURIBOR or HIBOR)? If the latter, which is the most commonly used reference rate in your jurisdiction? Interest is most commonly calculated by reference to EURIBOR.

Are there any regulatory restrictions on the rate of interest that can be charged on bank loans? Interest can be charged on bank loans within certain limits, calculated on the basis of the average market rates charged for similar transactions, as published quarterly by the Ministry of Economy in agreement with the Bank of Italy and the Italian Exchange Office. Pursuant to the Usury Law (108/1996), rates that exceed the average market rate by 25% plus 400 basis points (or that exceed the average market rate by 800 basis points) are deemed to be usurious. Contractual provisions providing for usurious rates are null and void and borrowing money at a rate above such thresholds is a criminal offence.

Use and creation of guarantees Are guarantees used in your jurisdiction? Yes – guarantees and collateral support are typically given by parent companies, sister companies and subsidiaries in Italian secured financings.

What is the procedure for their creation? Guarantees should be in writing and be permitted in the grantor’s constitutional documents.

Do any laws affect or restrict the granting or enforceability of guarantees in your jurisdiction (eg, upstream guarantees)? In principle, guarantees may be granted if:

  • financial assistance rules are not breached (certain exceptions apply to joint stock companies only);
  • there is a corporate benefit to the company giving the guarantee; and
  • grant is permitted by the articles of association of the relevant company.

The directors of an Italian company are under a duty to promote the success of that company only, and not that of any group of which the company is a part; accordingly, it may not be possible to show a corporate benefit from providing an upstream or cross-stream guarantee. The existence of the benefit (direct or indirect) to the company is a matter of fact (not law) to be addressed and evaluated by the directors on a case-by-case basis. The directors must therefore carefully analyse a transaction to determine the overall benefit to the company. If the parent company acts in violation of fair corporate and business management of other group companies, it may be held liable to the shareholders and creditors of those companies for damages for unfair direction and coordination activities. A maximum guaranteed cap should be agreed, which should never be an amount that would make the company technically insolvent.

A guarantor may object to enforcement of the guarantee in the absence of default by the debtor of the guaranteed obligations or raise any other objection, which the debtor is entitled to oppose against the guaranteed creditor. Such defences are waived in the case of grant of a first demand autonomous guarantee, in which event the guarantor is entitled to claim only that the guarantee has been enforced fraudulently.

Subordination and priority Describe the most common methods of structuring the priority of debts and security. Contractual subordination of debt is permitted under Italian law and is particularly common in relation to syndicated loans and securitisation transactions. In practice, this can be achieved through an intercreditor agreement, although clauses governing subordination may be disregarded by a receiver in an insolvency scenario. Structural subordination is possible under Italian law and is often used in acquisition finance transactions where junior facilities are made available to a holding company and senior facilities are made available to an acquisition vehicle or, following the acquisition, the target.

Documentary taxes and stamp duty Are any taxes, stamp duty or other fees payable on the granting of a loan, guarantee or security interest, or on its enforcement? Registration taxes can be substantial and cumulative, unless the parties opt for the substitutive tax regime, under which a flat-rate tax at 0.25% is levied on the entire transaction, irrespective of the number of securities to be registered.

If no substitutive tax regime is available, registration taxes are applicable as follows:

  • Guarantees – these are not generally subject to mandatory registration with the Italian tax authorities. When filed for registration with the tax authorities, registration tax applies at a rate of 0.5% on the amount of the secured obligations.
  • Special liens, mortgages, pledges over quotas and shares, and pledges over receivables – the rate of the registration tax depends on whether the security interest secures the security provider’s own obligations or those of a third party. If the security secures the security provider’s own obligations, a flat-rate registration tax is generally payable in the amount of €200. Otherwise, registration tax applies at a rate of 0.5% on the amount of the secured obligations (or, with respect to quotas/shares, the lower between such amount and the value of such quotas/shares).
  • Assignment of receivables by way of security – in principle, this is always subject to registration tax at a rate of 0.5% calculated on the nominal value of the receivables assigned.
  • Mortgage tax – a mortgage over property is subject to mortgage tax at a rate of 2% on the secured amount (a 0.5% proportional rate charge may apply on cancellation of the mortgage). Mortgage tax applies in addition to the registration tax mentioned above.
  • Stamp duty tax – in case of filing (voluntary or mandatory) with the Italian tax authorities, guarantees and security interests are subject to stamp duty tax. The tax ordinarily amounts to €16 for every four pages or 100 lines of the document.

On enforcement, registration tax will be payable at a rate ranging from €200 to a 3% proportional rate. Additionally, legal proceedings of a civil, administrative or tax nature are subject to a special stamp duty called ‘contributo unificato di iscrizione a ruolo’, which varies depending on the value and type of the proceedings.

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