On January 26, 2016, the Italian Government and the European
Commission have agreed on the terms under which guarantees may be
provided by the Italian Government for Non-Performing Loan
The Italian NPL market is entering into a new transactions spree
in 2016. The size of NPL portfolios owned by Italian banks is
estimated to be roughly Euro 200 billion (source: Il Sole 24
The Italian banks will not pursue the "bad bank"
route—i.e., creating specific authorized entities that will
be contributed with the non-performing assets of the relevant
banks—but it is expected that NPL transactions will follow
the typical securitization scheme.
Under such scheme, the NPL portfolio will be assigned to
securitization vehicles incorporated under the Italian law no. 130
of 1999 ("Law 130"), that in turn will issue asset-backed
securities collateralized by the relevant underlying portfolio.
The Law 130 regime contains specific protections for investors
and it proved to be very familiar to market participants for
several asset-classes, including NPL.
To increase the appetite of the investors for these transactions
and the relevant asset-backed securities, according to the
information available, the Italian Government may grant a
guarantee, that is expected to be issued by Cassa Depositi e
Prestiti ("CDP"), in respect of the senior tranche of
notes issued by the relevant securitization vehicles.
This would basically make those ABS comparable to government
bonds ("BTP") and potentially eligible—subject to
compliance with all the eligibility requirements set forth by the
applicable regulations—as collateral for refinancing
transactions with the Eurosystem.
The guarantee by the Italian Government has been deeply
discussed with the European Commission.
Needless to say, the guarantees granted by the Italian
Government to the securitization vehicles that will acquire the
non-performing loans must be compatible with state aid regime
applicable at the European level for the rescue and restructuring
According to the last Communications issued by the Commission,
such aid measures must have a temporary nature, as they are
justified only as an emergency response to the stress in financial
markets, and only as long as those exceptional circumstances
The interpretation and application of the state aid rules are
currently stricter than what we have seen until summer 2013, when
the Commission strengthened the burden-sharing policy, i.e. banks
in distress could not be rescued any more with state aids unless
shareholders and junior creditors have first born the burden of the
losses. Following the recent entry into force of the Bank Recovery
and Resolution Directive (applicable in Italy from January 1,
2016), the bail-in principle has become fully applicable, since in
the event of a bank crisis not only shareholders and junior
creditors, but also senior bond holders and depositors with savings
exceeding EUR 100,000 will be exposed up to 8% of the passivities
of the bank, before any public funding can be engaged into the
rescue – via the resolution funds.
This is why the guarantees of the Italian Government that will
be issued for the various securitization vehicles have been
approved by the Commission, only on condition that the guarantees
will be issued and priced at standard market conditions.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under Regulation (EU) No. 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories ("EMIR")...
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