Italian Prime Minister Giuseppe Conte said on 3 June 2020 that “the emergency caused by the coronavirus pandemic can be an opportunity to reshape the country and address its long-standing problems”. Italy has been one of the countries worst hit by the COVID-19 pandemic that has claimed more than 33,500 lives in the country.

Before the crisis hit, Italy's secondary market was rapidly developing, particularly in the second half of 2019. This was in part due to special purpose vehicles ("SPVs"), to whom banks had transferred their NPLs under the State Securitisation Guarantee Scheme (Garanzia Cartolarizzazione Sofferenze, “GACS”), selling on bad loans to third parties.  Out of the 488 deals closed in Italy in 2019, 333 were primary and 155 secondary, a rise from the two preceding years. AnaCap Financial, Balbec, Banca IFIS and Guber Banca were amongst the buyers who closed deals with the four servicers managing the GACS SPVs; Prelios Credit Servicing, Cerved Credit Management, doValue, and Credito Fondiario.

However, rating agencies DBRS Morningstar, Moody’s and Scope Ratings forecast a decline in the securitisations of non-performing exposures in Italy in the coming months, particularly in relation to corporate SME loans.

The Italian government has adopted a comprehensive set of fiscal and financial measures designed to tackle the dramatic short-term effects of COVID-19. These measures are covered in three lengthy Law Decrees which fall within the European State Aid Temporary Framework as enacted by the EU Commission. The Law Decrees include the key fiscal and financial measures set out below.

  • Guarantee schemes to support business liquidity

The Italian export credit finance agency, SACE S.p.A. ("SACE"), will provide up to EUR 200bn of loan first-demand guarantees until 31 December 2020, guaranteed by the Italian state. The SACE guarantees are available to any enterprise established in Italy  in  respect  of  new financings.   

  • Moratorium for mortgages and loans

In addition to a moratorium on first-home mortgages, there is a moratorium applicable to credit granted to small and medium-sized enterprises ("SME") until December 2020. The moratorium applies to (i) credit line agreements and receivables finance in force on 29 February 2020 or 17 March 2020 respectively; (ii) non-instalment loans with a maturity date falling before 30 September 2020; and (iii) loan instalment payments and leasing payments due before 30 September 2020.

  • Tax benefits on assignment of NPLS

In relation to transfers of non-performing loans ("NPLs") for consideration made before 31 December 2020, a company may convert into tax credits the amount of deferred tax assets relating to (i) tax losses not yet used to decrease the taxable income at the date of the transfer; or (ii) the Notional Interest Deduction (Aiuto alla crescita economica) still available at the date of the transfer.

The Italian Ministry of Economy and Finances expects EUR 20bn NPEs assignment transactions in 2020.

  • State guarantee on bank liabilities

A state guarantee to back liquidity facilities and newly issued liabilities of banking institutions may be granted up to EUR 19bn. The provision applies to banks who have their registered office in Italy for six months as of 19 May 2020.


The Italian government has also, in response to the COVID-19 emergency, strengthened the so-called "Golden Power" rules protecting Italian strategic assets and companies.

Pursuant to Law Decree No. 21 dated 15 March 2012, the Italian government has the power to prohibit or impose restrictions and/or conditions to an investment by foreign persons in certain industries deemed strategic for the Republic of Italy.

The Law Decree No. 23 of 2020 (“Decree”) expands the scope of the Golden Power rule to additional strategic sectors including financial, credit, insurance and critical technologies in addition to  national defence and security, 5G technology, energy, transport and communications.

Under the Golden Power rules, it is mandatory for the Italian government to be notified of certain transactions and for pre-clearance to be obtained in respect thereof. The Decree extends the scope of application of these screening powers of the Italian government until 31 December 2020:

  • Acquisitions by EU entities - Screening of acquisitions of controlling interests by EU  entities  will  apply  to  all

    additional sectors set out in the Decree.

  • Acquisitions by any non-EU entity - Screening of the acquisition by any non-EU entity of any interest representing at least 10 per cent of the corporate capital (or otherwise entitling it to at least 10 per cent of the voting rights), as well as any subsequent acquisition exceeding 15 per cent, 20 per cent, 25 per cent or 50 per cent, in each case of any company operating in any of the strategic sectors and provided the investment value exceeds EUR 1m.

Additionally, the Decree allows the Italian government to initiate a golden power review of transactions independently i.e. in the absence of it having received a notification filing

The measures introduced by the Decree will provide further protection to certain Italian companies that previously did not fall within the Italian Golden Power rules and could be targeted by  opportunistic foreign investors at a time when valuations reach historic lows.


The Italian legal system takes the form of continental civil law. The Italian Civil Code sets out the hierarchy of the internal sources of law, with the Constitution ranking first followed by constitutional law,  EU legislation, ordinary law, law decrees and legislative decrees, regional law and government regulations.

The civil judiciary system has a three tier structure. The first tier is comprised of the Justices of the Peace (giudici di pace) and the Courts or Tribunals (tribunali), the second tier of the Courts of Appeal (corte d’appello)  and the third of the Supreme Court (corte di cassazione), which has overall competence and final instance. 


We appreciate the assistance of Benedetta Mazzotti and Claudio Corba Colombo at De Berti Jacchia Franchini Forlani with the following discussion on Italian law, regulation and practice.


    • Banking licence generally required for lending activities.
    • Assignment preferred method for transfer of loans/receivables or participation behind a non-Italian fronting bank where the buyer does not have banking licence.
    • Italian Bank Lender of Record “IBLOR” structures as fronting structures may be subject to challenges.
    • Equitable subordination risk where there is a shareholder seller.
    • Withholding tax of 26 per cent unless tax treaty applies.


A banking licence is generally required under the Banking Consolidated Act 1993 and the Financial Consolidated Act 1998 in order to carry out lending activities. Italian branches of foreign financial institutions may operate in Italy subject to authorisation by the Bank of Italy where there is a non-EU parent company.

Insurance companies and securitisation companies may lend directly to persons other than individuals or micro-enterprises.

Italian and EU closed-ended Alternative Investment Funds may also exercise direct lending to persons other than consumers.


Two main methods of transfer are provided for under Italian law: (i) the assignment of receivables arising from a drawn credit facility; and (ii) the assignment of the whole contractual position, including obligations to effect undrawn facilities.

In relation to the transfer of a fully funded term loan, the   borrower should be notified of the transfer. However, in respect of revolving credit facilities and term loans not fully disbursed, the borrower’s consent is required.

Security is generally transferred automatically with the receivables and/or the whole contractual position. However, depending on the type of security, specific formalities may be required to effect the transfer e.g. annotation at land registries, delivery of notices etc.

Italian Bank Lender of Record ("IBLOR”) structures as fronting structures may be subject to challenges. With non-transparent IBLOR, the Italian fronting bank receives credit support (cash collateralised guarantees) from non-Italian “participants”, creating a risk of banking licence and withholding tax “look-through”. With transparent IBLOR, the Italian fronting bank grants LMA participations to buyers. Whilst there is no banking licence “look through", there is still a withholding tax “look through".


Trusts and parallel debt structures are not recognised or tested in Italy and lenders must generally hold security. That said, security agents (mandatario con rappresentanza) can hold and exercise rights on behalf of a single lender or multiple lenders under a power of attorney.


A buyer may be subordinated to other creditors if  the loan  is granted  by  a seller who  was  a  shareholder  or  exercised  “direction  and co-ordination”,  i.e. control  when  the borrower  was under-capitalised  or  when  shareholder contribution was reasonable. Exceptions apply where the loan was granted in the context of restructuring/compositions procedures.


Interest due to non-resident lenders is generally subject to 26 per cent withholding tax unless double taxation treaty or the Interest and Royalties Directive apply. Certain interest payments on long-term loans extended by foreign lenders to Italian resident companies are exempt from withholding tax, provided certain conditions are met.

Interest derived from investment in government bonds and similar securities are subject to a 12.5 per cent substitute tax.

Security agreements and guarantees executed in Italy are subject to registration tax from EUR 200 up to a proportional rate of 0.5 per cent of the secured amount while loan agreements are subject to registration tax at a fixed rate of EUR 200 up to a proportional rate of 3 per cent.

Stamp duty applies at the fixed rate of EUR 16 for every four pages.

Registration tax and stamp duties will not apply where the relevant agreements are executed abroad or by exchange of correspondence, save for in relation to future use, i.e. filing of the agreement with a central or local court chancery, or cross-reference in a subsequent deed.


Assignment agreements are not subject to specific formalities.  However, notice to a borrower in relation to assignment of receivables must bear a certified date. Service of such notice may be executed through court bailiffs, certified mail or electronic certified email.

Depending upon the type of security, certain formalities may be required in order to make the transfer enforceable against third parties, e.g. annotation at land registries, delivery of notices etc. Furthermore, the constitution and transfer of certain securities (in rem) may be required by way of a notarised deed.


MOBY GROUP SPA ("Moby Group")

On 29 June 2020, Italian ferry company Moby Group's subsidiaries, Moby SpA and Compagnia Italiana di Navigazione, filed for composition with their creditors. In a press release released on the same day, Moby explained that the aim of the decision was to allow the companies to continue negotiations with their creditors to reach a restructuring agreement under the supervision and protection of the Milan civil court, protect business continuity and ensure the normal operation of the ferry routes for customers, employees and allied industries. The Moby Group hopes to reach an agreement with its creditors that is "fair, of common satisfaction and capable of ensuring that companies can overcome the current difficulties and continue the relaunch of the Moby Group in the interest of stakeholders".

The Moby Group, controlled by the Onorato family, has been negotiating a debt restructuring agreement of EUR 560m for some time with banks and bondholders gathered in the Ad Hoc Group and hedge funds, including Soundpoint Capital, Cheyenne Capital and York Capital. The negotiations follow Moby Group's failure in February 2019 to pay the 7.75 per cent coupon on a EUR 300m bond expiring on 15 February 2023 and as well as the interest due on a EUR 260m revolving credit line.


Italian carrier, Alitalia, announced on 11 June 2020 that it will be resuming international flights from Milan in July, reversing the drastic reduction in activity caused by the COVID-19 crisis. The airline intends on operating 60 per cent more flights compared to June, flying 52 routes to 37 airports, including 19 in Italy and 18 abroad.  

The news follows Rome's decision in March to renationalise the struggling flagship carrier, which first took flight in 1946, with more than EUR 3bn as part of a broad set of emergency measures in response to the health emergency. As part of the overhaul, Alitalia is expected to be handed a monopoly for air transport between Sicily and mainland Italy. The revamped Alitalia is also expected to be smaller, with its fleet falling from 113 planes to between 92 and 105, and have a focus on long-haul routes rather than the fiercely competitive European market.

The Italian government's funding comes despite at least 6 failed rescue plans since Alitalia was privatised in 2008, costing EUR 10 billion in bailouts and loans.  Furthermore, the airline has not posted a year of net profit since the start of the millennium, and is estimated by analysts to be losing several million Euros every week.

US based aviation service group, USAerospace Partners, who filed an expression of interest to buy Alitalia prior to the pandemic, announced last month that it was still interested in Alitalia and open to joining the Italian government and other investors to restructure the loss-making carrier.


On 24 June 2020, Italy's audit court reportedly authorised a state guarantee for a EUR 6.3bn loan to multinational automaker, FCA's, Italian unit. The government will guarantee 80 per of the debt facility to be provided by Italy’s biggest retail bank, Intesa Sanpaolo, representing the largest state-backed credit line granted to a single company in the country’s banking history.

In April, the carmaker drew down EUR 6.25bn from its revolving credit facility and set up a separate line of EUR 3.5bn from a group of banks. Carmakers worldwide, including FCA's rivals Ford and GM, have bolstered their finances during the crisis, which has seen demand collapse and factories and dealerships closed.  

The Italian government’s loan guarantees come with strong advice not to pay dividends for the year. Although FCA abandoned its planned EUR 1.1bn dividend for this year, it is still scheduled to pay a EUR 5.5bn special dividend immediately prior to completion of its USD 50bn merger with French Groupe PSA, in order to equalise the size of the companies.  However, this may avoid falling foul of the Italian government’s advice as it is expected to be paid in the first quarter of 2021. The merger, which will create the world's fourth largest carmaker, is currently facing an exhaustive EU antitrust probe.    

FCA is also in talks to raise USD 1bn through a bond, a move that would avoid it having to tap its EUR 3.5bn credit line.

TELEPIZZA GROUP S.A.  ("Telepizza")

Spain-based Telepizza, which is the largest non-US pizza delivery operator worldwide, announced its 2020 first-quarter results on 29 May 2020, reporting that COVID-19 had caused "significant, unprecedented and unexpected disruptions" to its operations. Although the results showed that the beginning of the Q1 FY20 period benefitted from good performance, the company's operations were materially adversely impacted by the pandemic, putting its liquidity position under pressure. Telepizza announced that it had engaged external advisors to evaluate options to establish a more sustainable capital structure and improving liquidity. The results also revealed that Telepizza's Q1 2020 adjusted EBITDA fell by 79.6 per cent year on year to EUR 3.7m and revenue was down 37.4 per cent in April

Telepizza also disclosed that it had entered into negotiations with Yum! Brands Inc. to revise the terms and conditions of the 2018 master franchise agreement on the Pizza Hut brand. In particular, the operator is seeking to revise store openings targets and conversions to the Pizza Hut brand to reduce capital spending and preserve liquidity. According to Telepizza, failure to revise the agreement with Yum! Brands Inc. may result in its termination in 2021, potentially having a material adverse impact on the business.

Following the announcement, on 4 June 2020, Moody's downgraded Telepizza's parent company, Foodco Bondco, S.A.U.'s ("Foodco") corporate family rating to Caa3 from B3. Moody's concurrently, downgraded Foodco's probability of default rating to Caa3-PD from B3-PD and the rating on the EUR 335m senior secured notes due 2026 issued by Foodco to Caa3 from B3, changing the company's outlook from stable to negative.  Moody's lead analyst for Telepizza, Igor Kartavov, explained that the negative outlook reflects the high probability that Telepizza will pursue a restructuring of its debt which could result in substantial losses for the company's financial creditors, given the company's deteriorated liquidity position and high leverage.  


On 25 June 2020, German digital payments company, Wirecard, announced that it was filing for insolvency proceedings in the Munich Local Court due to "impending insolvency and over-indebtedness",  adding that its survival as a going concern was "not assured". However, Wirecard announced on 27 June 2020 an intention to proceed with business activities following its insolvency filing, stating that "continuation is in the best interests of the creditors”. Wirecard’s preliminary insolvency administrator has said that “numerous” companies have expressed interest in buying parts of the group.

The Financial Times reported that Wirecard has been locked in urgent negotiations with banks owed EUR 1.75bn pursuant to the RCF. The company has a further EUR 1.4bn of debt that it issued in September 2019 - the EUR 500m Notes and the Convertible Bonds set out below.  Wirecard has drawn about 90 per cent of its EUR 1.75bn credit line with banks, including Commerzbank, LBBW, ING and ABN Amro. The four have the largest exposure with EUR 200m each

Trading update

Wirecard's shares and bonds plunged after the company said it was filing for insolvency, with shares plummeting 80 per cent to EUR 3 from a peak of EUR 191 in the summer of 2018, their lowest since January 2006. The price of its EUR 500m Notes, classified as investment grade at issue by Moody's, also fell to a record low of 12 cents on the EuroBloomberg reported that the Repackaged Bonds fell 73 per cent on 18 June 2020 to 19.9 cents on the Euro and fell a further 11.7 cents on the Euro on 19 June 2020. The Financial Times reported on 1 July 2020 that the RCF was trading at less than 20 cents on the Euro.

Reasons for Wirecard's collapse

Wirecard's collapse comes days after the fintech company admitted that EUR 1.9bn of cash was missing from its accounts. At the center of the apparent multi year accounting fraud were suspect arrangements in which payments processing was said to be outsourced to partners in the Philippines, Dubai and Singapore. According to a special audit by KPMG, KPMG could not verify the genuineness of Wirecard’s sales and profits from third parties. These partners were the source of the “lion’s share” of the EUR 1bn in operating profit Wirecard reported between 2016 and 2018. Founder and former chief executive Markus Braun, who propelled Wirecard into Germany’s prestigious Dax 30 index in 2018, resigned on 19 June, after two Philippine banks announced that they don’t and never held EUR 1.9bn in the accounts for Wirecard. Markus Braun was arrested on 22 June 2020 on suspicion of false accounting and market manipulation before being released on bail. Police raided Wirecard’s Munich headquarters on 1 July 2020 for the second time in four weeks.

Among other potential litigation routes, investors in Wirecard will argue that Wirecard failed to publish timely and correct inside, non-public information within the

meaning of Article 7 of Regulation (EU) No. 596/2014 on Market Abuse. In accordance with section 97 para. 1 no. 1 German Securities Trading Act Wirecard would then be obliged to pay damages to investors in this case.

Furthermore the German shareholders’ association SdK has filed a criminal complaint against Wirecard's longstanding auditors, Ernst & Young ("EY"), who refused to sign off on the company's 2019 accounts after discovering the gap in its balance sheet. EY commented that “even the most robust and extended audit procedurescouldn’t uncover the “collusive fraud. A class action lawsuit was filed in early June 2020 against EY on behalf of Wirecard investors, alleging it failed to flag improperly booked payments on Wirecard’s 2018 accounts and further class action lawsuits are planned by aggrieved shareholders, investors who subscribed to the 2019 Wirecard bond issuance and holders of derivatives. SBIA also indicated its intention to sue EY. The main argument for such claims against EY is the allegation that EY acted gross negligently when issuing unqualified audit opinions in respect to Wirecard's annual financial statements for the previous years.

Business operations of group companies

Although Winecard’s initial insolvency filing only affected Wirecard Group's holding company, on 2 July 2020, the District Court of Munich (Amtsgericht) announced that six of Wirecard’s subsidiaries also filed for insolvency.

On 26 June 2020 the Financial Conduct Authority ("FCA") imposed a number of requirements on Wirecard's UK subsidiary, Wirecard Card Solutions Limited, including a prohibition on the disposal of any assets or funds and conducting any regulated activity. Although, the FCA lifted the ban on payment

activities late on 29 June 2020 Wirecard Card Solutions Limited remains subject to restrictions around where it can keep customers’ money and asset transfers.

Wirecard's insolvency filing does not currently include Wirecard Bank AG, which will continue to carry out payments to merchants.  Wirecard Bank AG holds an estimated EUR 1.4bn in deposits and is already under emergency management by BaFin, the German banking regulator. 

Wirecard creditors

Wirecard creditors include:

  1. Lenders under the EUR 1.75bn unsecured syndicated revolving facility agreement dated 15 June 2018 with an original maturity date of 15 June 2023 and possibility to extend until 15 June 2024 granted to Wirecard AG governed by German law (the "RCF") guaranteed by Wirecard Technologies GmbH, Wirecard Sales International Holding GmbH, Wirecard Payment Solutions Holding Limited and Wirecard Processing FZ-LLC.
  2. Bondholders under the EUR 500,000,000 0.5 per cent notes due 2024 issued by Wirecard AG governed by German law (the "EUR 500m Notes") guaranteed by Wirecard Technologies GmbH, Wirecard Sales International Holding GmbH, Wirecard Payment Solutions Holding Limited and Wirecard Processing FZ-LLC.
  3. Bondholders under the EUR 900,000,000 1.9 per cent onvertible bonds due 2024 guaranteed by Wirecard AG governed by German law (the "Convertible Bonds").

The RCF contains the customary events of default - which include failure to comply with financial covenants (including a leverage financial covenant with a ratio of consolidated total net financial debt to adjusted consolidated EBITDA of 2.5 to 1 which is subject to a spike in case of an acquisition allowing an increase of the ratio up to 3.25 to 1 and is likely to include financial statements being provided on certain dates or events) and insolvency or insolvency proceedings are initiated. Upon the instruction of majority lenders, the loan can be accelerated.

Holders of the EUR 500m Notes are structurally subordinated  compared to other lenders of the  group as the terms and conditions of the EUR 500m Notes provide less broad events of default than those in the RCF and limited covenants. For example, the cross-acceleration clause is limited to capital market indebtedness and, as such, a default of the group under other financing arrangements does not necessarily permit noteholders to accelerate the EUR 500m Notes. An event of default can occur under the EUR 500m Notes if, amongst other things (i) the Issuer or any Guarantor announces its inability to meet its financial obligations or ceases its payments generally or (ii) insolvency proceedings against the Issuer or a Guarantor are initiated (subject to a 60 day grace period).

The Convertible Bonds, issued by a Luxembourg Wirecard subsidiary, were allegedly purchased by SoftBank Investment Advisors ("SBIA"), which manages the SoftBank group's USD 100bn Vision Fund, together with certain employees and Mubadala (Abu Dhabi's sovereign wealth fund) in September 2019. These bonds, which can be converted into ordinary shares of Wirecard AG at an initial convenience of EUR 130 per Winecard share, are unsecured and are of equal rank and have at least the same priority as all other unsecured and non-subordinated claims against the Issuer. Events of default under the Convertible Bonds are similar to those under the EUR 500m Notes.

Repackaged Bonds

A day after purchasing the Convertible Bonds, SBIA allegedly, together with Credit Suisse, repackaged the Convertible Bonds in a "return optimisation“ measure, with the issuance of a new EUR 900m bond (the "Repackaged Bonds"). SBIA reduced its exposure to Wirecard through the issuance of the Repackaged Bonds at a higher price than those of the Convertible Bonds, the proceeds of which reportedly funded SBIA's entire investment in the Convertible Bonds.

The Repackaged Bonds are secured by the Convertible Bonds. They have been issued in two classes (i) Class A Notes which have a 0.5 per cent rate of interest and (ii) Class B Notes for which no interest is payable. Following the acceleration of the Convertible Bonds, a Collateral Event under the Repackaged Bonds occurs, after which the Repackaged Bonds become due and payable. A default of the Convertible Bonds is not in itself an event of default of the Repackaged Bonds and does not automatically permit the trustee to enforce the collateral.

Germany to overhaul accounting regulation

In response to the Wirecard collapse, Germany is to overhaul the way it regulates accountancy firms as its deputy finance minister calls for “radical solutions”. The government is to terminate its contract with the Financial Reporting Enforcement Panel, a private-sector body responsible for monitoring the financial reporting of listed companies on behalf of the government. The Financial Reporting Enforcement Panel powers will be transferred to BaFin.

Our team is assessing potential litigation angles against all third parties in connection with Wirecard with our securities partner Ravi Nayer.

For more information on Wirecard and potential claims, please contact Louisa Watt, James Cole, Hannah Geddes and Ravi Nayer who have been working with Michael Nieses of Heuking Kühn Lüer Wojtek.


Please contact Iden Asl or Andrew Baker with any queries regarding this month's Trade Alert.


This publication is for general purposes and does not provide comprehensive or full legal advice. It is based upon public information available at the time of publication and is subject to change. Brown Rudnick LLP does not accept any responsibility for losses that may arise from reliance upon information contained in this update. This publication is intended to give an indication of legal issues upon which you may need advice. The contents of this update may not be relied upon as accurate or sufficient and full legal advice should be taken in relation to specific trading situations.

Brown Rudnick LLP, a limited liability partnership organized under the laws of the Commonwealth of Massachusetts ("BR-USA"), is affiliated with Brown Rudnick LLP, a limited liability partnership registered in England and Wales with registered number OC300611 ("BR-UK").  BR-UK is a law firm of Solicitors and Registered Foreign Lawyers authorised and regulated by the Solicitors Regulation Authority of England and Wales, and registered with the Paris Bar pursuant to the 98/5/EC Directive. A full list of members of BR-UK, who are either Solicitors, European lawyers or Registered Foreign Lawyers, is open to inspection at its registered office, 8 Clifford Street, London W1S 2LQ, England (tel. +44.20.7851.6000; fax. +44.20.7851.6100).

Information contained in this Alert is not intended to constitute legal advice by the author or the lawyers at Brown Rudnick LLP, and they expressly disclaim any such interpretation by any party. Specific legal advice depends on the facts of each situation and may vary from situation to situation.