The Italian loan market continues to show signs of growth and renewed activity; recent reforms have moreover been introduced to facilitate real estate lending and the granting of loans to enterprises.
Banks are still the main players, although recent legislation, designed to relax traditional Italian bank monopoly rules is opening the market to other categories of lenders (see Section II.i, infra).
Banks increasingly try to model their financing agreements and individual clauses on Loan Market Association (LMA) standards, and recommend them as a starting point for negotiations. However, strong and sophisticated borrowers will seek to negotiate (to a greater or lesser extent) tailor-made provisions for their financing agreements.
II LEGAL AND REGULATORY DEVELOPMENTS
As a result of the financial crisis and additional detrimental events that have impacted on the financial sector, a number of changes, both legal and regulatory, have come into effect. Loan market participants find themselves dealing with such changes on a regular basis. This section details the developments that have, for a long time, had a strong impact on the Italian loan market and its documentation terms.
i Bank monopoly rules
Traditionally, under Italian law, only banks and financial intermediaries were allowed to lend to the public. Italian courts have tended to interpret the relevant provisions quite strictly and have so, for example, held that even the entering into a single financial transaction might be constructed as lending to the public.
Recently, however, legislation has been passed to open the Italian loan market to other categories of participants, in an effort to make credit more easily available to borrowers. In particular, insurance companies and Italian securitisation companies have been allowed to lend (on certain conditions) to persons other than individuals or micro-enterprises and legislative amendments have been passed to regulate the lending by Italian and EU closed-end investment funds to persons other than consumers.
As regards insurance companies and Italian securitisation companies, current legislation now allows them to lend to persons other than individuals or micro-enterprises provided that:
- a the borrowers have been identified by a bank or a financial intermediary authorised to lend in Italy that: (1) in identifying the borrowers and approving the loan, has followed its general lending procedures and policies, and (2) shall then retain a ‘significant economic interest' in the transaction, in accordance with implementing regulations issued by the Bank of Italy (in the case of securitisation companies) or the Italian Insurance Supervisory Authority (in the case of insurance companies);2 and
- b in the case of securitisation companies, the notes issued to fund the financing are destined to qualified investors.
Additional legislation has recently been passed regarding the securitisation of deteriorated receivables (crediti deteriorati) transferred by banks and financial intermediaries having their registered offices in Italy, under which Italian securitisation companies are, inter alia, allowed (in such context and on certain conditions) to grant loans to their securitised debtors, so as to favour their turnaround and increase recovery prospects.
As regards, instead, closed-end investment funds, recent amendments to the Italian Financial Act have set out framework legislation for the granting of loans to persons other than consumers by:
- a Italian closed-end investment funds; and
- b EU closed-end investment funds:
• that are authorised by their home regulator to make such loans in their home jurisdiction;
• whose model (including, in particular, rules on investment in the fund) is similar to that of Italian closed-end investment funds authorised to issue loans to persons other than consumers; and
• whose home rules on management and fractioning of risk (including, but not limited to, limits to authorised indebtedness) are equivalent to those applicable to Italian closed-end investment funds authorised to issue loans to persons other than consumers.
These reforms have been well received by the market, although the reform is still too recent to verify its actual impact.
ii Basel III, CRD IV and increased costs
Since the Basel III papers were first published, there has been debate over whether the costs entailed should be paid by the lenders (banks) or by the borrowers. Most lenders wish for the borrowers to cover the costs, and have adjusted their indemnity clauses so that Basel III and CRD IV charges are thus paid by the borrowers. There have, however, been exceptions for certain customers who have stronger credits or are substantial borrowers.
iii Sanctions and anti-corruption laws
As a result of strong enforcement action being taken by sanctions authorities, including strict penalties, lenders are (as in other jurisdictions) requesting contractual assurances from borrowers as to their compliance with anti-corruption legislation and sanctions.
Borrowers may seek to limit the scope of such assurances by referring only to specific regimes (so as not to be forced to cover all regimes applicable, anywhere in the world) or by inserting materiality or knowledge qualifications. In any case, the need for such provisions is now widely acknowledged and accepted by borrowers.
III TAX CONSIDERATIONS
i Withholding taxes on interest
Generally speaking, interest on loans paid by an Italian resident borrower to an Italian resident corporate lender (or to a permanent establishment in Italy of a non-Italian resident lender) are not subject to withholding taxes in Italy. Any interest will form part of the business income of the lender, subject to corporate income tax (IRES, at the current rate of 24 per cent) and - in certain circumstances - to regional tax on productive activities (IRAP, at various rates ranging from 3.9 per cent to 5.9 per cent), plus local surcharges.
On the other hand, interest on loans paid by an Italian borrower to a non-Italian resident lender are subject to a 26 per cent withholding tax (that could be lowered according to applicable tax treaty, if any).
However, pursuant to a recent amendment to the relevant tax provision,3 interest payments on long-term loans extended by foreign lenders are exempted from withholding taxes. In particular, such an exemption applies, inter alia, in the event that the lender is authorised to perform lending activity pursuant to the Italian Banking Act (Legislative Decree No. 385 of 1 September 1993, and it is:
- a an EU-resident financial institution;
- b entities embodied under Article 2, paragraph 5, numbers from 4) to 23) of EU Directive 2013/36/EU;
- c an insurance company constituted and authorised to carry out its activity according to EU law; or
- d an institutional investor4 subject to forms of supervision in its country of establishment.
ii Interest deductibility
As a general rule, interest expenses on loans are deductible up to an amount equal to interest income accrued by the same taxpayer in the same taxable year.
Any excess over the above amount is deductible up to 30 per cent of the gross operating income realised by the main business carried out by the company (EBITDA).
Any excess of interest expenses over the above 30 per cent threshold that remains not deductible in a taxable year may be carried forward and deducted (within the same 30 per cent limit) in the following taxable years.
If, in a fiscal year, there is an excess of the above 30 per cent EBITDA over the net interest expenses, the excess may be carried forward without limitation and may be used to increase the relevant threshold in the following taxable years (Article 96 of the Consolidated Tax Act).
Interest expenses incurred in relation to loans guaranteed by a mortgage granted on a real estate to be rented are outside the scope of the EBITDA limit deduction rule.
iii Stamp duty
Under general Italian tax rules, security agreements and guarantees executed in Italy are subject to registration tax that ranges from a minimum of €200 up to a proportional rate of 0.5 per cent (in the event the guarantee is represented by a mortgage, a further mortgage tax applies at the rate of 2 per cent) calculated on the secured amount.
As a general rule, a loan agreement is subject to registration tax at the fixed rate of €200 (although higher rates ranging up to 3 per cent may become applicable in the event that certain financial undertakings are encompassed in the same agreement).
Stamp duty, on the other hand, applies at the fixed rate of €16 for each four pages.
If the relevant agreements are lawfully executed abroad or by ‘exchange of correspondence', registration tax and stamp duty are not due upon signing (according to guidelines rendered by the Italian tax authorities, an agreement is concluded by way of exchange of correspondence when signatures of each party to the agreement are kept in separated documents). In these circumstances, registration tax may become applicable if one of the following occurs in the future:
- a a ‘case of use' (i.e., the agreement is deposited with a central or local court chancery in connection with an administrative procedure); or
- b a case of cross reference to the unregistered agreement in a successive deed, agreement or other document entered into, executed or signed by the same parties thereto and registered in Italy, or in a judicial decision rendered in a judicial proceeding between the same parties.
However, long-term loans satisfying certain requirements5 can benefit - on an optional basis - from a specific ‘substitute tax' regime (Imposta Sostitutiva), which provides for the application of a flat rate tax of 0.25 per cent (to be calculated on the amount of the relevant financing) instead of ordinary indirect taxes otherwise applicable (together: the Excluded Taxes).
In particular, when the Imposta Sostitutiva regime is chosen, the Excluded Taxes would not apply to documents connected to the loan, such as securities and guarantees of any kind granted by whomever and at any time.
iv Foreign Account Tax Compliance Act (FATCA)
The intergovernmental agreement between the United States and Italy has been concluded, but the implementing decree has not yet been ratified.
As in the case of representations and undertakings on sanctions and anti-corruption, the insertion of FATCA provisions was initially resisted by Italian borrowers but has now become generally accepted in the Italian law loan market.
IV CREDIT SUPPORT AND SUBORDINATION
i Security: general considerations
Types of security interest
Secured lending transactions typically involve a combination of security interests. Security can be taken over all asset classes and the choice of security interest depends on the nature of the asset and its importance in the context of the security package. Section IV.ii, infra and Section IV.iii, infra analyse the various types of security interests and personal guarantees available under Italian law.
Form of security documents
Security documents are invariably entered into in writing. In many cases this is a legal requirement; in other cases this is done anyway to prevent the guarantor from raising any questions about the existence of the guarantee.
Certain kinds of security interests (mortgages, special privileges, the new conditional security assignment of property, pledges over quotas in Italian limited liability companies and pledges over intellectual property) must be granted pursuant to a notarial or notarised deed, which must be entered into in the Italian language. Non-notarised security documents may also be entered into in English or in other languages.
Where a security package includes more than one kind of security (e.g., mortgage, plus pledge over shares, plus pledge over accounts), separate security documents will be typically entered into in respect of each kind of security interest.
In addition to the above, in most cases of in rem security interests Italian law requires the completion of perfection formalities. These will be analysed on a case-by-case basis in Section IV.ii, supra.
Absence of security trustee
Because of continuing legal uncertainty on the recognition, validity and enforceability of structures featuring a security trustee or based on parallel debt, it is generally considered preferable to grant Italian law security interests directly to individual lenders.6
Plurality of security interests over the same asset
It is possible to grant a same security interest in favour of a plurality of creditors.
On the other hand, it is not always possible to grant several security interests over the same asset. In particular:
- a this is certainly permissible in the case of mortgages, in which case:
• mortgages will rank in accordance with the timing of their registration on the relevant register; and
• holders of lower-ranking mortgages may commence enforcement proceedings in respect of the mortgaged asset, provided that holders of higher-ranking mortgages would be notified and would be satisfied in priority (subject to intervention in the enforcement proceeding); but
- b on the other hand, it is doubtful that several pledges or special privileges may be created over the same asset.
ii Forms of in rem security interest
Security over land and other real estate
Creation and enforcement of security over land and other real estate has been at the centre of recent legislative reforms aimed at making real estate lending (especially on commercial property) more easily accessible. These reforms have consisted: (1) on the one hand, in a general overhaul of Italian enforcement proceedings, designed to increase their efficiency and reduce their duration; and (2) on the other hand, in the introduction (for certain categories of assets) of a new form of conditional security assignment (described in Section IV.ii, ‘Conditional security assignment of property', infra), which could prove quicker and more efficient to enforce than mortgages.
Mortgages are created upon registration on the relevant Italian land register.
Mortgages have to indicate a maximum secured amount, which must be expressed in euro (even though the underlying obligation may be in a different currency). Typically, this would be higher than the initial principal amount of the secured obligation.
Mortgages entitle the mortgagee to obtain the sale of the mortgaged property through a court-supervised sale proceeding. This has traditionally proved quite lengthy, and it is therefore not unusual (in large mortgage-lending transactions) to set up arrangements for the private sale of the mortgaged assets without resorting to enforcement of the mortgage; as anticipated, it is, however, possible that recent reforms may reduce this issue in the future.
First-ranking mortgages over land or other real estate, securing medium-to-long term loans issued by Italian or EU banks, and having an initial loan-to-value ratio not exceeding 80-100, may benefit from the ‘credito fondiario' regime. This entails several advantages for the lender (e.g., shortened consolidation period, and possibility to continue enforcement pending the debtor's bankruptcy). On the other hand, the borrower benefits from certain enhanced protection and rights (e.g., extended grace periods in the event of payment default).
Conditional security assignment of property
The conditional security assignment: (1) may only secure financings granted to an entrepreneur by a bank or an authorised financial intermediary, and (2) may not relate to the main home of the mortgagor, his or her spouse and certain other categories of his or her close relatives. The security assignment may be in favour of (1) the lender or (2) a corporate entity that is controlled by (or affiliated to) the lender and authorised to purchase, hold, manage and transfer real estate.
The conditional security assignment is perfected through registration in the relevant Italian land register.
The security assignment is conditional upon material default by the borrower on its payment obligations: the law identifies the criteria (i.e., number of unpaid instalments; duration of the delay) to determine when the payment default may be regarded as such. To the extent the security assignment is activated by the lender, the value of the real estate is to be estimated by a valuer appointed by the court; if the valuer finds that the value of the real estate is higher than the lender's credit (plus transfer costs and expenses), the lender is required to pay the difference to the owner of the real estate.
Security over ships and aircraft
Security over ships and aircraft would also be taken by way of a mortgage.
Such mortgages are perfected through registration on the applicable register and annotation on certain documents that are held on the ship or aircraft itself. In the case of ships, this may in practice prove a lengthy process, as it will be necessary to wait until the ship has entered a port where an Italian authority empowered to effect the registration is present.
As in the case of mortgages created on land or buildings, aircraft or shipping mortgages have to indicate a maximum secured amount, expressed in euro.
Aircraft and shipping mortgages present a number of peculiarities because of the nature of the underlying asset. In particular and inter alia:
- a in practice, it may prove difficult to enforce security over an aircraft's engine, especially if it may not be specifically identified or has become separated from the aircraft;
- b certain privileged creditors (e.g., the crew, or port or airport authorities) may be preferred to the mortgagee; and
- c seizure or enforcement of mortgages on aircraft that are effectively used on an air transport line or kept in reserve to be used on an air transport line may be subject to special authorisations or limitations.
Security over shares or financial instruments
Security over shares or financial instruments would be taken by way of a pledge. This would, whenever possible, be done pursuant to Legislative Decree 170/2004, which has implemented in Italy EU Directive 2002/47/EC on financial collateral arrangements.
Save where the less rigorous formalities of EU Directive 2002/47/EC on financial collateral arrangements apply, pledges:
- a must be granted by way of a written agreement bearing ‘date certain' at law; and
- b are perfected (depending on the type of financial instrument) by way of registration on the certificate or a register, or in the centralised systems for dematerialised instruments.
Pledges over shares or quotas in companies grant the pledgee the right to exercise voting and other shareholders' rights. However: (1) these are typically waived in favour of the pledgor until an enforcement event should occur, and (2) in practice, even in a default scenario, creditors are typically reluctant to exercise them.
Pledgors and pledgees are, in general, free to agree on the manner in which the pledge is to be enforced, provided they do not simply agree that the pledgee shall be entitled to keep the shares or financial instruments in satisfaction of its claims. As in other EU jurisdictions, in pledges granted pursuant to Directive 2002/47/EC it is required that such procedures be reasonable from a commercial viewpoint.
Security over receivables and insurance policies
Security over receivables may be taken by way of a pledge or a security assignment; generally, the second would be adopted.
The security assignment or pledge is perfected through notification to the assigned debtor (or acceptance by the assigned debtor) with date certain at law. It is, however, not unusual to postpone this latter formality until an enforcement event should occur. Lenders should however note that if, in the meantime, (1) other security assignments or pledges are notified, these will prevail (although entered into at a later date), or (2) the receivables are attached by other creditors (or the assignor or pledgor is declared insolvent) the relevant creditor's or insolvency proceeding's right will prevail.
The assignment or pledging of certain kinds of receivables (e.g., receivables against public administrations) may require additional formalities.
Receivables towards insurance companies insuring mortgaged properties in many cases are not assigned. Rather, a loss payee clause is placed on the insurance, requiring inter alia the insurance company to pay any liquidated damages to the mortgagee.
Security over bank accounts
Security over bank accounts would, whenever possible, be construed as a pledge over monies governed by Legislative Decree 170/2004, which has implemented in Italy EU Directive 2002/47/EC on financial collateral arrangements.
When this is not possible, the security is constructed as a pledge over the receivable held by the pledgor in relation to the bank as a consequence of the existence of a cleared credit balance. However, this approach presents several drawbacks, not least of which that perfection of the pledge would need to be renewed each time new monies are credited to the bank account.
Security over tangible moveable property
Security over tangible moveable property has traditionally been taken by way of a pledge or (when admissible) a special privilege. Recent legislation has introduced a third form of security interest (consisting in a non-possessory pledge) to address some of the shortcomings of these two forms of security.
Pledges on moveable properties require a written agreement, with date certain at law and (subject to specific exemptions) delivery of the pledged assets to the pledgee (or a custodian). In practice, this latter requirement makes pledges an acceptable form of security for moveable assets of which the pledgor may dispossess itself (e.g., bonds and securities) or for which special laws allow retention by the pledgor, but a difficult security to implement in cases where the pledgor must (or anyway wishes to) retain the availability of the pledged assets (e.g., machinery).
Special privileges may be taken (1) to secure medium-long term loans granted by banks to commercial enterprises, and (2) over certain categories of assets (e.g., machinery, equipment, concessions, raw materials, inventory, goods purchased with the relevant financing, receivables arising from the sale of the above), to the extent destined to the running of the borrower's business. Special privileges may not, however, be taken over registered assets such as ships or aircraft.
The special privilege (and the new non-possessory pledge over moveable assets) are the closest instruments to a floating charge that Italian law recognises as they cover classes of assets owned from time to time by the borrower, as opposed to specific assets owned by the grantor at the time the security is granted. In addition, special privilege does not require delivery of the relevant assets to the pledgee (or a custodian) and is, therefore, (where implementable) an efficient alternative to pledge.
Special privileges are perfected through the filing of the relevant deed, with the competent court of the area where the grantor has its registered office.
The non-possessory pledge may be granted by entrepreneurs over the enterprise's current and future moveable assets (other than registered moveable assets such as cars, ships and aircraft) and business receivables, as security for financings granted (to the entrepreneur or other parties) for purposes connected with the carrying out of the enterprise's activities.
Non-possessory pledges must be granted in writing and are enforceable upon registration on an electronic register, to be established and kept by the Italian Tax Authority. The non-possessory pledge will have to indicate a maximum secured amount.
Unless otherwise provided in the pledge agreement, the pledgor may transform, transfer (in compliance with their economic destination) or otherwise dispose of the pledged assets; in such cases, the pledge would extend to the asset resulting from the transformation or to the disposal proceeds (or any other assets acquired through such proceeds).
To the extent this is expressly provided in the relevant pledge agreement, enforcement rights may include the right to lease the pledged assets (and allocate lease rentals to the satisfaction of the secured claims).
Security over intellectual property rights
Security over Italian patents, designs, trademark registrations and trademark application has typically been given in the form of a pledge. Delivery of the pledged asset or perfection of security is achieved by registration of the pledge with the competent IP right registry. It is now, however, possible to subject also these assets to the new non-possessory pledge.
iii Forms of personal guarantees
Italian law recognises two main forms of personal guarantees: suretyships and first demand guarantees.
In banking practice, guarantees are typically granted in the form of a first demand guarantee, whereby the guarantor is requested to pay upon simple demand and without being able to raise any pre-emptive objection, as they leave much less scope for exceptions by the guarantor than a suretyship. Courts would, however, grant orders prohibiting the guarantor from paying, where manifest fraud may be shown.
A letter of patronage is sometimes accepted as a substitute to an outright guarantee. The contents of Italian letters of patronage may vary, and their value would depend on the nature, content and strengths of the obligations assumed in each single case by the sponsor.
Italian law requires all forms of personal guarantees to be capped with reference to a maximum guaranteed amount. This could also apply to obligations arising from letters of patronage.
In banking transactions, subordination generally takes two forms:
- a structural subordination (where the order of payment depends on which company in the group is a debtor to the junior and senior creditors); and
- b contractual subordination, where the order and ranking of debt is arranged by the creditors (usually through an intercreditor or subordination agreement). While this form of subordination is thought of as being enforceable between contracting parties, it must be noted that the question of the enforceability of a subordination clause in the context of bankruptcy proceedings is untested in Italian courts.
V LEGAL RESERVATIONS AND OPINIONS PRACTICE
i Main legal reservations
Capacity and corporate benefit
Italian companies may grant security for or assume joint liability with other entities to the extent this is justified by a sufficient and proportionate individual corporate interest of the guarantor or joint obligor. The existence of an interest or of advantages for the grantor's group as a whole, or for the grantor's shareholders, will not be sufficient per se, unless it may be shown that the individual guarantor or joint obligor also directly or indirectly derived an actual, sufficient and proportionate profit from it.
The existence, nature, sufficiency and proportionality of the corporate benefit must be discussed, analysed and set out in detail in the grantor or joint obligor's board resolution. Legal counsel would typically ensure that this is the case, but would then assume the existence of a sufficient corporate interest in his or her legal opinion.
Downstream guarantees do not usually present particular problems since the benefits to a parent in guaranteeing the obligations of its direct or indirect subsidiary are usually self-evident (although exceptions may exist, for example, if the grantor itself is in difficult economic circumstances).
On the other hand, the corporate benefit is less evident in the case of guarantees in support of a parent or sister company's obligations and will therefore require precise identification and explanation. Accordingly, in group financing transactions where Italian subsidiaries are required to guarantee the indebtedness of their parent or sister companies, it is usual for such guarantees to be capped by reference, for example, to the portion of global financing received through intra-group loans or equity injections, or through the Italian grantor's net worth.
More stringent rules may exist in certain regulated industries in connection with the granting of intra-group guarantees.
Traditionally, financial assistance (i.e., a target company and its direct or indirect subsidiaries financing their own acquisition or granting guarantees or security in connection with indebtedness assumed to finance or refinance their own acquisition) was subject to a blanket prohibition in Italy.
Recent legal amendments (and implementation of the Second Company Law Directive (Directive 2006/68/EC)) have, however, allowed Italian joint-stock companies to grant financial assistance if, inter alia:
- a an extraordinary shareholders' meeting approves the transaction in advance, following an enhanced procedure;
- b the aggregate amount of all loans and guarantees does not exceed aggregate distributable profits and reserves (as resulting from the most recent approved financial statements); and
- c a special purpose non-distributable reserve for an amount equal to the aggregate of all loans and guarantees is registered in the company's financial statements.
However, since this is quite cumbersome and requires the cooperation of the target company's directors and shareholders prior to the acquisition, it is not usual for Italian joint-stock companies to grant guarantees or security in respect of the acquisition financing.
Accordingly, in many cases, borrowers would secure acquisition financing by immediately granting a pledge over the target's shares and would then (and if required) organise:
- a a merger with the target company; and
- b the refinancing of the acquisition facility (with granting of security over the assets of the company resulting from the merger).
The merger would, however, have to follow the enhanced procedure provided under Article 2501 bis of the Italian civil code.
Guarantees and security provided by an Italian company (or any foreign company subject to Italian insolvency proceedings) may be at risk of being clawed back on the request of the insolvency officer if:
- a given within a certain period prior to commencement of liquidation or administration; and
- b at the time the security was granted or created, the grantor was already insolvent and the beneficiary had actual or constructive knowledge thereof.
The duration of the vulnerability period differs, depending inter alia on whether the security was granted (or promised, as the case may be):
- a at the same time as the secured indebtedness was incurred; or rather
- b for pre-existing indebtedness.
Special rules may apply to certain kinds of security (e.g., and most notably, mortgages granted in the context of a mortgage loan transaction carried out under Article 38 et seq. of Legislative Decree 385/1993 (the Italian Banking Act) (credito fondiario) would consolidate in 10 days).
The burden of proving that the grantor was already insolvent and the beneficiary had (or did not have, as the case may be) actual or constructive knowledge of the insolvency would shift between the grantor and the insolvency official, depending on the circumstances in which the security was granted.
Security duly granted under restructuring agreements governed by Article 67 and Article 182 bis of the Italian bankruptcy law are generally exempted from the risk of clawback.
Italian legislation on usury and compounding of interest
- a prohibits lenders from lending at all-in interest rates that are higher by more than a certain amount than the ones published (for each kind of transaction) on a quarterly basis by the Italian Treasury. It is debated whether it sufficient for the contractual interest rate to be lower than the maximum interest rate admitted by Italian usury legislation on the date the credit agreement is entered into or whether it is required that the contractual interest rate at no time exceed the maximum interest rate admitted from time to time by Italian usury legislation. Most credit agreements now adopt the second approach and cap contractual interest rates at the maximum level admitted from time to time by Italian usury law; and
- b limits lenders' ability to compound or capitalise accrued but unpaid interest.
It is common practice for Italian law legal opinions to contain qualifications relating to legislation on usury or compounding of interest.
Security trustee and parallel debt
To the extent a security trustee or a parallel debt structure is adopted in respect of Italian law security, in most cases Italian law legal opinions will be qualified by stating that no opinion be expressed as to matters relating to the recognition, validity or enforceability of any such trust or parallel debt structure.
ii Legal opinions practice
Where legal opinions are concerned, their content and method of delivery in Italian law secured lending transactions is well established.
Before funding, lenders require opinions on (1) each borrower's and guarantor's capacity and authority, and (2) the validity and enforceability of the facility documentation (including any security documents) and the enforceability of security interests.
The general expectation is that counsel to the borrower will deliver the former and counsel to the lenders will deliver the latter.
VI LOAN TRADING
Italian law theoretically admits both:
- a the assignment of receivables arising from a drawn credit facility, subject to such limitations as the parties may have agreed in the finance documents; and
- b the assignment of the whole contractual position, including obligations to effect yet undrawn facilities, subject to borrower consent.
In practice, while the first type of transaction is frequently implemented, the second is practically never adopted.
With respect to the acquisition of receivables arising from secured loans, the following should be noted:
- a the purchaser of the receivables should, as a general rule, be an entity authorised to conduct banking or financial activities in Italy, an Italian securitisation company or an authorised fund; and
- b generally speaking, security would be transferred automatically together with the receivables. However, depending on the type of security, specific formalities may be required to make the transfer effective (e.g., annotation on land registries, giving of notices, etc.), which (depending on the characteristics of the security and the loan) might trigger stamp duty and other indirect taxes. As stated in Section IV, supra, Italian lending transactions do not normally feature a security trustee, which makes this issue particularly relevant.
VII OUTLOOK AND CONCLUSIONS
The Italian government is committed to facilitating foreign investment in Italy, increasing access to credit for Italian enterprises and making it easier for banks to unload non-performing loans currently present on their balance sheets. This has led, and is leading, to a number of important reforms, which may have a profound impact on the Italian lending market.
Some of these reforms (e.g., provisions to relax the Italian bank monopoly rules, amendment to withholding tax rules, the possibility for common representatives to hold security on behalf of the holders of secured or project bonds, introduction of new forms of security interests and the general overhaul of Italian enforcement proceedings) have been touched upon in this chapter. Others have already been enacted (e.g., a reform of lease agreements, which is already facilitating the real estate credit market) or have been announced.
Foreign investors would seem to have taken notice and deals have been recently announced and carried out that have seen major international players step up their investments in Italy.
It will be interesting to see how these trends develop in the coming months.
1 Giuseppe Sacchi Lodispoto is a partner and Raffaella Riccardi is a managing associate at BonelliErede.
2 In the case of loans by Italian securitisation companies, current Bank of Italy regulations set the ‘significant economic interest' at 5 per cent and provide that the same must be retained in one of the manners set out in Article 405 of the Capital Requirement Regulation.
3 Reference is made to Law Decree No. 91 of 24 June 2014, as converted into law with amendments by Law of 11 August 2014, No. 116.
4 As defined under Article 6 of Decree of 1 April 1996, No. 239.
5 In this respect, to benefit from the Imposta Sostitutiva regime, the loan - inter alia - must be granted by an Italian or EU resident bank. Furthermore, according to a very recent amendment to the relevant provisions (reference is made to Law Decree No. 91 of 24 June 2014, as converted into law with amendments by Law of 11 August 2014, No. 116), the Imposta Sostitutiva regime was also extended to long-term financings granted by (1) Italian securitisation special purpose vehicles; (2) insurance companies constituted and authorised to carry out their activities according to EU law; and (3) collective investment funds constituted in ‘white listed' EU and EEA countries.
6 Recently, legislation has been passed to allow the granting of security in favour of the common representative of the bondholders in the event of secured bond and project bond issuances. The common representative is entitled to exercise, on behalf of the note holders, all the rights and faculties (both substantial and judicial) arising from such security interests. Although these provisions should not be applied beyond the case for which they have been specifically introduced (secured bonds or project bonds issuances), they might conceivably pave the way for future legislation applicable also to loans.