New business opportunities for securitisation SPVs

​Introduction
Changes


Introduction

New business opportunities have emerged following recent changes to the Securitisation Law (Law 130 of April 30 1999, as amended by Decree-Law 50 of April 24 2017).

Until recently, securitisation special purpose vehicles (SPVs) were prohibited from playing an active role in the management of distressed debts which they purchased in the context of a securitisation transaction. Further, SPVs were expressly prohibited from:

• owning any asset other than receivables; and
• performing any activity other than those strictly relating to the collection and recovery of claims.

Such a strict regime combined with the Italian banking monopoly, which prevents foreign distress funds from directly purchasing Italian non-performing loan portfolios, has caused several inefficiencies in securitisation transactions relating to non-performing loans. There was a need for management of purchased assets to be active and more flexible in order for purchasers to extract profit from a deal.

The new rules offer securitisation SPVs a wider set of tools and, more generally, foster the growth of the market for non-performing loans across various asset classes.

Changes

Active role of securitisation SPVs in distressed scenarios
When acquiring distressed claims from Italian banks and financial intermediaries, securitisation SPVs can now grant loans to the borrower and convert claims into shares or other equity and quasi-equity instruments issued by the borrower or another company through debt-to-equity swaps in order to improve the chances of a successful business turnaround in the context of an in-court or out-of-court debt restructuring or composition with creditors.

All claims and proceeds deriving from such loans and equity instruments form part of the segregated pool of assets under the Securitisation Law. They are effectively ring-fenced and the SPV can apply such claims and proceeds to make payments only to the:

• holders of the asset-backed notes issued to finance the purchase of the distressed portfolio; and
• other third party service providers appointed in the context of the securitisation transaction.

Further, the ordinary regime requiring the subordination of shareholders loans does not apply to senior financing made available to the borrower by the SPV.

As an SPV is typically an insolvency-remote corporate shell, it lacks the required skill and resources to face the complexity of debt restructuring or the ongoing management and monitoring of a loan agreement. Accordingly, an SPV must seek the assistance of a professional player, such as a bank or a financial intermediary, in order to perform agency and supporting activities in the interest of all stakeholders involved in the securitisation.

When granting loans, securitisation SPVs are subject to the following Securitisation Law requirements:

• The identification of borrowers must be made by a bank or financial intermediary which must retain a 5% net economic interest in a manner similar to the retention rule under the Capital Requirements Regulation and the EU Alternative Investment Fund Managers Directive (2011/61/EC).
• Borrowers must be legal entities (as opposed to individuals), with the sole exclusion of enterprises which employ fewer than 10 persons and whose annual turnover and annual balance sheet does not exceed €2 million.
• Noteholders must be legal entities which are authorised or regulated to operate in the financial markets.

ReoCo and non-performing leasing claims
The amended Securitisation Law features a clear legal framework for establishing SPVs (known as ReoCos) that have the sole aim of acquiring, managing and re-selling real estate properties, movable assets or other assets that collateralise the non-performing loan portfolio purchased by securitisation SPVs. In other words, the ReoCo can bid during the court-supervised auction process and maximise recoveries in the exclusive interest of the securitisation transaction. With regard to assets which are the object of distressed financial lease agreements, the ReoCo can hold them (including real estate assets) in order to ensure full bankruptcy remoteness from the originating bank and sell the same on the market for the benefit of the securitisation SPV and the relevant investors.

All ongoing activities relating to the leased assets transferred to ReoCos are carried out through a specifically appointed professional. As previously mentioned, all cash flows deriving from the management, repossession and resale of the collateral are ring-fenced and segregated by law in favour of the noteholders and the SPV's other transaction creditors.

The new rules also:

• address some inefficiencies which, until now, had made the securitisation of non-performing claims deriving from financial leases extremely complex; and
• clarify, to some extent, the regime applying to the transfer of immovable leased properties and the applicable tax treatment.

Simplified formalities for assignment of certain claims
The simplified regime is also applicable to the assignment of claims which cannot be identified by block criteria (which is the general rule for the assignment of portfolios under the Securitisation Law). Until recently, the Securitisation Law's favourable transfer regime was reserved for claims identified as a pool. Now, the sole publication of a notice of transfer in accordance with the new rules renders said assignment enforceable against debtors and third parties, even when the distressed portfolio – as is often the case – is formed by a vast variety of assets or credit arrangements and it is impossible to identity properly common elements to create a pool of homogeneous receivables.

For further information on this topic please contact Andrea Giannelli or Vittorio Pozzi at Legance Avvocati Associati by telephone (+39 02 89 63 071) or email (agiannelli@legance.it or vpozzi@legance.it). The Legance Avvocati Associati website can be accessed at www.legance.com.