A number of important new aspects and certain grey areas not to be underestimated: this may be deemed to be the first balance of the new “Destinazione Italia” Decree (Law Decree No. 145/2013, the Decree) whose Article 12 contains, amongst other things, remarkable changes to the Italian securitisation law. The following sections will focus on: (i) assets eligible for securitisations; (ii) segregation of current accounts; (iii) assignments to securitisation vehicles and related perfection formalities; (iv) assignments of receivables owed by Public Administration; (v) subscribers of securitisation notes; and (vi) securitisations carried out through investment funds.
Assets eligible for securitisations
A new paragraph 1-bis has been added by the Decree to Article 1 of the Italian securitisation law and, as result thereof, it is now clearly stated that the Italian securitisation law also applies to “securitisation transactions carried out through the subscription and purchase of bonds and similar securities other than equity instruments, hybrid securities and convertible bonds”. The above provision ratifies all previous transactions of that type and authorises new securitisation transactions having the aforementioned assets as underlying assets.
Such new provision, however, does not allow securitisation vehicles to purchase bonds and similar securities beyond the thresholds set forth in the Italian civil code. In fact, as securitisation vehicles are not “professional investors subject to prudential supervision”, they are not entitled to subscribe for unlisted bonds issued by joint stock companies (“società per azioni”) beyond the threshold set out in Article 2412(1) of the Italian civil code (i.e., twice the share capital, the statutory reserve and the distributable reserves). Unlisted bonds exceeding the thresholds mentioned above can be purchased by securitisation vehicles on a secondary market only.
Even more tight restrictions apply to the subscription of debt securities issued by limited liability companies (“società a responsabilità limitata”) according to Article 2483 of the Italian civil code. In fact, whilst paragraph 5 of Article 2412 on joint stock companies (“società per azioni”) provides for an exemption to the thresholds described above if the relevant bonds are listed on a regulated market, no similar exemption is set forth under Article 2483 in relation to debt securities issued by Italian limited liability companies. As a result, the sole option available to securitisation vehicles to invest in debt securities issued by Italian limited liability companies is the purchase of such debt securities on a secondary market.
Considering that most of the Italian companies are established as limited liability companies, we wonder whether the above reflects the original intention of the legislator. The above provisions as currently drafted may prevent Italian limited liability companies from having access to the securitisation market which would represent a significant form of alternative financing.
Under Article 6 of the Italian securitisation law, notes issued by securitisation vehicles are subject to the same tax regime provided for bonds and similar securities issued by listed companies, including the tax regime provided for by Legislative Decree No. 239 of 1 April 1996. Even though Article 6 makes reference to the securities mentioned in Article 5, i.e. notes issued to finance the purchase of receivables, for the sake of consistency and on the basis of the new paragraph 1-bis in Article 1, the same regime should apply to notes issued in the context of a securitisation of bonds and similar securities.
Segregation of current accounts
One of the most significant new aspects introduced by the Decree relates to the segregation principle applicable to the current accounts opened in the context of securitisation transactions. The above principle is now included in paragraphs 2-bis and 2-ter added to Article 3 of the Italian securitisation law. However, regardless of the rationale behind the new paragraphs, it seems that new queries replace previous doubts.
According to the letter of the aforementioned paragraphs, amounts deposited into the “segregated current accounts” of the securitisation vehicles are separated from the depositary’s and the other depositors’ assets (paragraph 2- bis) and the servicer’s and sub-servicer’s assets (paragraph 2-ter). However, neither of the above paragraphs contains a definition of “segregated current accounts”. Is this a new type of “current account” requiring specific formalities for its opening and management? and, if this is the case, will the new paragraph apply only to the current accounts opened after the coming into force of the Decree? Clarification on such points would appear to be needed.
Based on a literal interpretation of paragraph 2-bis, it would seem that its purpose is to remove the insolvency risk of the depository bank, only where such depositary bank also acts as servicer. Only a broader interpretation of Article 2(3), letter (c) of the Italian securitisation law (as referred to in paragraph 2-bis) may lead to a different conclusion. In fact, assuming that only a depositary bank (as opposed to a depositary bank acting as servicer) falls within the scope of the expression “entity providing cash and payment services” as included in Article 2(3), letter (c) of the Italian securitisation law one may reach the conclusion that new paragraph 2-bis actually removes the insolvency risk of a depositary bank (whether or not acting also as servicer). However, at this stage and in the absence of any clarification from the legislator, a prudent interpretation can support solely the literal interpretation above, as a result of which paragraph 2-bis would seem to benefit Italian banks acting as servicers only.
With respect to the new paragraph 2-ter of the Decree it has to be noted that such a provision merely removes the servicer’s and the sub-servicer’s insolvency risk when, in the context of securitisation transactions, they open segregated current accounts in their name but on behalf of a securitisation vehicle. Also in that scenario, it is doubtful whether the amounts deposited in a current account opened with a depositary bank (other than a depositary bank acting servicer) are to be deemed exempt from the insolvency risk of that depositary bank.
Should the above issues not be clarified, the market may not appropriately receive the new amendments which, if better specified, would give rise to a substantial increase in competition of Italian banks acting as depository (but not as servicer) in the context of a securitisation transaction.
Assignments to securitisation vehicles and related perfection formalities
The assignment of receivables arising from “agreements executed by the assignor in the course of its own business” may now benefit from the less burdensome assignment and perfection procedure set forth under the Italian factoring law1.
According to the explanatory note to the Decree, the aim of such new provision is to facilitate securitisations of trade receivables. However, we note that the aforementioned new paragraphs would seem to be capable of going beyond their original scope. In fact, even the receivables arising from banking or financial contracts may fall within the category of claims mentioned above subject to certain conditions being met.
Another aspect to be considered relates to the application of the Italian securitisation law to assignments of receivables where they do not qualify as a “pool of receivables” (i.e., a group of uniform receivables having a common distinctive feature). Even though it seems that the legislator’s intent was to totally remove the requirement of identifying the receivables as a “pool”, there is no certainty that the new provision may actually represent a derogation to the concept of pool.
Assignments of receivables owed by Public Administration
New paragraph 4-bis to Article 4 of the Italian securitisation law introduces important changes to the perfection formalities relating to the assignment of receivables owed by the Public Administration. No further formality than those set out under the Italian securitisation law must be carried out to make the assignment enforceable against the Public Administration.
However, certain doubts arise with respect to the interaction between the new paragraph 4-bis and the specific provisions governing the assignments of public receivables.
For instance, it may be argued that the Public Administration’s right to reject the assignment within 45 days from the day on which a notice of assignment has been served on it2 has not been repealed. Nonetheless, the obligation to notify the assignments to the Public Administration would seem to fall within those “different and further formalities” removed by the new paragraph 4-bis. If the above construction is correct, one should wonder which instrument (other than the service of a notice) is suitable to allow the Public Administration to be informed of the assignment in order to exercise their right of refusal.
Subscribers of securitisation notes
According to the new paragraph 2-bis of Article 5 of the Italian securitisation law, the notes issued in the context of a securitisation of bonds and similar securities (as provided under the new paragraph 1-bis of Article 1) are now available for subscription by insurance companies wishing to invest their technical reserves. This also applies if the notes “are not negotiated in regulated markets or multilateral trading systems and are not provided with a credit rating issued by third parties”.
It is worth noting that the wording of new paragraph 2-bis exclusively affects those securitisation transactions regarding bonds and similar securities, as no reference is made to Article 1(1) of the Italian securitisation law relating to receivables. Such a construction may lead one to believe that in the event the securitised assets are represented by one or more receivables, the insurance companies would be entitled to subscribe for the notes within the limits currently set forth in the ISVAP regulation no. 36 issued on 31st January 2011.
Securitisations carried out through investment funds
Another significant change introduced by the Decree relates to securitisation transactions carried out through investment funds according to Article 7 of the Italian securitisation law. New paragraph 2-bis of said Article 7 now clarifies that asset management companies are entitled to perform the servicing activities mentioned in Article 2(3) letter (c) of the Italian securitisation law, thus shedding light on one of the issues that caused the securitisation structure under Article 7 to be unfit for use. In addition, the aforementioned paragraph 2-bis also points out that “Articles 4 and 6, paragraph 2, along with the remaining provisions of the Italian securitisation law, as far as applicable, will apply to” assignments in favour of investment funds.
As regards the type of investment funds able to carry out securitisation transactions, we note that item (b) of the aforementioned Article 7(1) was not amended by the Decree, which still refers to investment funds “dealing with receivables” on an exclusive basis. A narrower construction of these provisions may lead one to believe that only investment funds “dealing with receivables” may carry out a securitisation transaction. As a result, all funds dealing with bonds and similar securities under the new paragraph 1-bis would be excluded. Such a view cannot be supported as the purpose of investment funds is generally broader (e.g., movable assets) and the application of the new paragraph 2-ter of Article 7 would be significantly affected since it identifies the units of the investment funds performing securitisation transactions as a category of assets eligible to cover the technical reserves of insurance companies.
Even though different provisions apply, securitisation transactions carried out through investment funds result in a tax regime that is to a large extent similar to the one applicable to transactions carried out through securitisation vehicles.
Upon conversion of the decree, the legislator’s intervention is reasonably foreseeable: it is worth giving responses to the market operators and clarifying the actual intentions of the Decree and the effects of the envisaged amendments. Otherwise, the current wording of Article 12 of the “Destinazione Italia” Decree would likely give rise to more doubts than certainties, and hardly achieve its ultimate purpose of facilitating and enhancing investments in Italy.