New form of Italian securitization transaction structure Securitization financing through loans

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In short …

The Italian securitization law was recently amended to expand its scope to cover transactions involving the provision of loans to a specialized fund to finance the purchase of receivables. With this amendment, it becomes possible to introduce new transaction structures and offer investors more flexibility. Law No. 178 of December 30, 2020 (Budget Law for 2021) amended and clarified the provisions set out in Law No. 130 of April 30, 1999 (Italian Securitization Law).

The provisions of the Budget Law for 2021, which apply from 1 January 2021 (New Provisions), in particular, expanded the scope of the Italian Securitization Law to include transactions related to the granting of loans to a Special Purpose Vehicle (SPV).

The previous regulatory framework provided for the issuance of asset-backed securities (ABS) as the only way for SPVs to raise funds, preventing such mechanisms from using other financing instruments, except for interim purposes for the subsequent issuance of ABS (and using the proceeds from the ABS to redeem such a bridging loan). This development aligns the Italian securitization structure with market practices in other European countries where SPVs can be financed through other bank debt instruments.

Under the new regulations, SPVs can now obtain loans from organizations authorized to carry out lending activities to finance the purchase of securitized receivables.

In this case, the amounts paid by the respective debtor (or, in any event, received in settlement of the transferred receivable) are solely for the satisfaction of the rights arising from the loans granted by SPV, as well as to cover any transactions. costs.

In addition, it was clarified that – in the case of SPV loans – any reference in Italian securitization law:

  • the term “notes” refers to “borrowings”; as well as
  • the term “noteholders” applies to “creditor organizations of payments due from the borrower for such loans”.

Due to the above amendments, third party lenders (banks or other licensed financial intermediaries):

  • can now provide loan (s) to SPVs in addition to or instead of issuing ABS by the SPV itself. Such loans must be strictly related to securitization (ie provided to finance the acquisition of the underlying securitized assets); as well as
  • will benefit from the same segregation principle (applicable to bondholders) under the Italian Securitization Law.

The priority of lenders (over bondholders) will be ensured through the payment phases (relating to the use of proceeds) set out in the respective securitization documents.

Due to the principle of segregation, it is likely that these loans should not be subject to additional guarantees and / or securities (in relation to the underlying assets and related receipts, as well as in SPV bank accounts).

There are no specific restrictions on the level of leverage.

Thus, the structure of financing a securitization transaction under Italian law is flexible as it can entail investments made through a subscription to ABS (which can also be issued in different tranches or classes) and / or the provision of loans, which in each case benefits from division of income derived from underlying assets.

The use of ABS – which is inevitably associated with certain administrative costs and complications (for example, the necessary presence of a custodian bank or paying agent or centralized clearing and settlement of securities in Monte Titoli) – does not always reflect the needs of the parties. participates in a securitization transaction. For example, this will be the case in “private” transactions where ABSs are not intended to be listed, rated or placed in the capital markets, but instead represent a purchase to hold an investment for the first ABS subscriber.

The selection of the most appropriate structure (eg ABS, loans or a combination of both financing instruments) should be made from time to time depending on the purpose of the transaction, the type of investors involved and the market valuation.

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