New form of Italian securitisation transaction structureFinancing securitisations through loans
The Italian securitisation law has recently been amended to extend its scope to transactions involving the granting of loans to a special purpose vehicle to finance the purchase of receivables. With this amendment comes the possibility to implement new transaction structures, and offering greater flexibility to investors.Law No. 178 of 30 December 2020 (the 2021 Budget Law) introduced some amendments, and provided certain clarifications, to the provisions set forth by Law No. 130 of 30 April 1999 (the Italian Securitisation Law).
The provisions of the 2021 Budget Law which apply from 1 January 2021 (the New Provisions) have, inter alia, extended the scope of the Italian Securitisation Law to include transactions which involve the granting of loans to a special purpose vehicle (the SPV).
The previous regulatory framework envisaged the issue of asset-backed securities (the ABS) as the only way for the SPV to raise funds, preventing such vehicles from using other funding instruments, except for bridge purposes with a view to subsequently issuing ABS (and using the proceeds of the ABS for repaying such bridge loan).This development aligns the Italian securitisation framework with market practice in other European countries, where SPVs can be funded through other bank debt instruments.
According to the New Provisions, to finance the purchase of the securitised receivables, the SPV may now receive loans granted by entities authorised to carry out lending activity.
In this case, the amounts paid by the underlying debtor(s) (or in any event received in satisfaction of the transferred receivables) are intended exclusively to satisfy the rights deriving from the loans granted to the SPV, as well as to cover any transaction costs.
In addition, it has been clarified that - in case of granting of loans to the SPV - any reference in the Italian Securitisation Law to:
- the term “notes” shall be made to the “loans”; and
- the term “holders of the notes” shall be made to “the entities creditors of the payments due from the borrower under such loans.”
As a consequence of the amendments described above, third-party lenders (banks or other licensed financial intermediaries):
- can now provide loan(s) to the SPV, in addition or in place of the issuance of the ABS by the SPV itself. Such loans should be strictly connected with the securitisation (ie granted to finance the acquisition of the relevant underlying securitized assets); and
- would benefit from the same segregation principle (applicable to the noteholder(s)) under the Italian Securitisation Law.
The priority of the lenders (vis-a-vis the noteholder(s)) will be provided under the payment waterfalls (dealing with application of proceeds) set out in the relevant securitisation transaction documents.
Due to the segregation principle, it is likely that these loans should not benefit from further guarantees and/or securities (over the underlying assets and the relevant proceeds, as well as on the SPV’s bank accounts).
No specific limits apply on the level of leverage.
The funding structure of an Italian law securitization transaction is therefore flexible, as it may entail an investment made through the subscription of ABS (which can be also be issued in different tranches or classes) and/or the granting of loans, in each case benefitting from the segregation of the proceeds deriving from the underlying assets.
The use of ABS - which inevitably involves certain administrative costs and complexities (i.e. the necessary presence of a custodian bank or of a paying agent or the centralised clearing and settlement of the securities in Monte Titoli) - does not always reflect the needs of the parties involved in the securitization transaction. For instance, this would be the case in “private” transactions in which the ABS are not intended to be listed, rated nor placed on the capital markets, but they would instead represent a buy to hold investment for the first subscriber of the ABS.
The choice of the most suitable structure ((ie ABS, loan(s), or a combination of both funding tools) shall be made from time to time, based on the purpose of the transaction, the type of investors involved and market valuations.