The Italian non-performing loan market is set to grow in the coming months as the temporary COVID-19-related measures put in place by the Italian government come to an end, with Italian banks’ non-performing loans likely to increase for the first time in nearly six years.

In 2020, Italian NPL transactions reached EUR 38 billion and are estimated to reach EUR 40 billion in 2021. The rise comes despite a slowdown in judicial proceedings and disruption to the commercial real estate market, both of which were expected to frustrate performance of NPL securitizations.

A key influencing factor in the rise of Italian NPL transactions is the State Securitisation Guarantee Scheme (Garanzia Cartolarizzazione Sofferenze, “GACS”). GACS is a state guarantee over the senior tranches of NPLs’ securitization transactions, which has positively contributed to the stabilization of the NPLs’ market in Italy. Currently, 35 GACS securitization deals have been completed for a nominal overall amount equal to EUR 85 billion. The availability of GACS has been extended until 14 June 2022. The rise has also been contributed to by (i) state-owned AMCO S.p.A.’s management of Italian banks’ NPL portfolios, with AMCO S.p.A managing an asset portfolio of EUR 34 billion in 2020; and (ii) tax incentives and stimulus packages introduced by the Italian government, facilitating the purchase of NPLs portfolios and which have been extended to 31 December 2021.

However, this positive trend is likely to be outbalanced by the expected surge in “new non-performing exposures” due by the economic and financial crisis triggered by the COVID-19 pandemic. Such surge has been avoided to date due the Italian’s government’s freeze measures (moratoriefor mortgages and loans, which are due to be lifted at the end of 2021.

Market players have nonetheless forecast a stock of bank gross non-performing loans returning to growth, + EUR 20 billion in 2022, with a 2022 NPE ratio similar to that in 2019 and new NPE inflows of up to EUR 100 billion in the next 24-30 months.

Upcoming Italian legislative measures, such as the Italian National Recovery and Resilience Plan (PNRR), may have a significant impact on the future of the NPE arena. In particular, an ambitious reform of the judicial system aimed at reducing the lengths of cases will be shortly submitted to Parliament’s vote. 


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.


The Italian legal system takes the form of continental civil law. The Italian Civil Codesets 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. 


  • 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.
  • Sub-participation in securitisation transactions may represent an alternative structure where the buyer does not have banking licence, although relatively untested in the market.
  • Equitable subordination risk where there is a shareholder seller.
  • Withholding tax of 26 per cent unless tax treaty applies.
  • KYC requirements of buyer (as updated and implemented by the Bank of Italy on 4 February 2020) to be checked by financial intermediaries in accordance with a risk-based approach to be assessed on a case-by-case basis by the relevant entity.


A banking licence is generally required under the Italian Banking Consolidated Act 1993 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 from both a regulatory and a tax standpoint. 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".

In this regard, of particular relevance is the Supreme Court Ruling 12777/2019, which has declared certain pool financing transactions, carried out by an Italian credit institution with a majority sub-participation of non-authorised foreign entities, as constituting a criminal offence of abusive exercise of financial activities. The case related to a syndicate formally regulated through a mandate without power of representation between an Italian bank and a foreign (non-EU) bank not authorised to operate in Italy. The Supreme Court found that the foreign bank was actually carrying out direct financing in Italy, based on certain “symptomatic indices” of the existence of a direct contractual relationship between the latter and the borrower (such as (i) the allocation pro quota between both banks of the insolvency risk of the borrower and the high exposure of the foreign bank vis-à-vis the same, (ii) the fact that the foreign bank had carried out an autonomous and independent assessment of the creditworthiness of the borrower, (iii) the fact that the borrower had undersigned the intercreditor agreement between the banks, and (iv) the existence of certain powers of the foreign bank to intervene in the performance of the loan agreement, including enforcement rights). In principle, the rationale of the ruling might have a broader impact on IBLOR structures that, under certain circumstances, may be found in violation of the rules on the exercise of reserved financial activities. In any case a case-by-case analysis would be necessary.

That said, an alternative structure for lenders would be the so-called sub-participation in the context of securitisation transactions. In particular, such scheme of securitisation transactions, as amended by Italian Law no. 145 dated 30 December 2018, provides for the issuance of notes by an SPV in order to finance the advance of a loan. The borrower shall repay such loan out of the collections deriving from a certain portfolio of claims, which is identified at the onset of the securitisation and will remain owned by such entity (unlike the so-called “true sale” scheme of securitisation, which provides for the transferring of the claims to the SPV). Further, the borrower may segregate the claims, as well as the rights and assets securing them, in favour of the SPV, by way of example, by creating a pledge over such claims or assigning in favour of the SPV the relevant proceeds. The Italian legislature has also clarified that such assets segregation shall be enforceable vis-à-vis third parties, including in case of insolvency of the borrower, strengthening the protections provided in favour of the SPV – and therefore the buyer.

Although relatively untested in the market – as the regulation has been finally completed in 2020 – such latter structure may represent an interesting business opportunity for investors.


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


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 the 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.


On 11 June 2021, the LMA published an Exposure Draft of their Standard Terms and Conditions for secondary debt trading to facilitate secondary loan market trading as the syndicated loan market transitions away from the use of LIBOR to compounded risk-free rates. The Exposure Draft is accompanied by an Explanatory Note and updated Trade Confirmation (Bank Debt)Trade Confirmation (Risk Participation) and Trade Confirmation (Claims).

The currently published version of the LMA Standard Terms and Conditions for Par and Distressed Trade Transactions dated 1 January 2021 have been drafted on the assumption that the interest provisions in the underlying facilities agreement are based on a term rate of interest, such as LIBOR or EURIBOR. Therefore, they do not currently reflect the recommendations for SONIA Loan Market Conventions issued by the Working Group on Sterling Risk-Free Reference Rates in September 2020. The LMA has therefore produced the Exposure Draft in order to:

  • reflect the SONIA Loan Market Conventions;
  • provide standard terms and conditions for a secondary transaction relating to the updated Compounded Rate/Term Rate Facilities published on 28 May 2021;
  • maintain the existing framework for secondary trade transactions which relate to a facilities agreement where all interest is calculated on the basis of term rates; and
  • Facilitate awareness of the issues for the secondary loan market when trading loans which use a daily backward-looking compounded risk-free reference rate as the basis for the calculation of interest for loans denominated in risk free rate currencies.

The key revisions are to the provisions relating to Delayed Settlement Compensation (Condition 11)Allocation of Interest (Condition 15), specifically Settled Without Accrued, Paid on Settlement Date, Paid on Settlement Date and Discounted From Next Payment Date and Trades Flat, and Electronic Communication (Condition 32.4).


CORNELIANI SPA (“Corneliani”) 

On 28 June 2021, the Court of Mantova formally approved Italian fashion brand Corneliani’s in-court restructuring proposal, or concordato preventivo procedure, supported by its sponsor Investcorp and Italian state-owned investment agency Invitalia. The group’s CEO, Giorgio Brandazza, has said the procedure “formally guarantees business continuity”. 

Following the admission to concordato preventivo, Corneliani will present its turnaround strategy and relaunch plan to potential buyers during the 2022 sales campaign to be launched by Corneliani on 19 July. The Italian menswear retailer filed for admission to a concordato procedure in June 2020 after its revenue dropped due to COVID-19-related store closures.

Corneliani attracted expressions of interest from several buyers including British fund Blackwood Capital and Italian retail group BasicNet. It received an extension to the original deadline of 15 January 2021 to allow it time to explore additional options. The offers failed to materialize, however, and ultimately Corneliani’s Dubai-based owner Investcorp agreed to inject £7m of new money into the company last month.

Last year, the menswear retailer also secured a EUR10m capital support package under the Italian Ministry of Economic Development “Relaunch Decree” aimed at safeguarding historic brands. The group, which was acquired by fund Investcorp in 2016, reportedly had EUR67m of debt as of June 2020.


French retailer Casino released its half-year results on 29 July 2021, reporting a 6.5 per cent decline in net sales year over year to EUR 7.334 billion in the second quarter of 2021. The decline is stated to be due to by unfavourable exchange rates and consolidation scope impacts.

The results also revealed that Casino Group has improved its financial condition and extended the maturity of its main EUR 1.8 billion syndicated credit facility to July 2026 from October 2023, having “comfortably” complied with the agreed covenants as of June. Casino’s subsidiary, Monoprix, also obtained a maturity extension for its EUR 130 million syndicated credit facility to January 2026.

Net debt at the end of the first half was EUR 6.347 billion, while the group's liquidity in France (including Cdiscount) was EUR 2.6 billion with EUR 528 million in cash and cash equivalents and EUR 2 billion confirmed undrawn lines of credit, available at any time. The group also has EUR 339 million in a segregated account for gross debt redemptions.

Casino also reported that it bought back approximately EUR 30 million of bond debt over the first half of the year.


Swiss tax-free shopping group Global Blue reported an 89.4 per cent year-over-year decrease in total revenue to EUR44.7m for the financial year ending 31 March as COVID-19 disrupted the travel retail industry. The decrease was primarily driven by a EUR328.8m drop in tax-free shopping solutions revenue and a EUR46.9m reduction in its added-value payment solutions revenue.

The group's adjusted EBITDA plunged by EUR210.7m to -EUR39.9m due to a EUR375.7m decrease in revenue linked to the COVID-19 outbreak, partially offset by a EUR165.1m fall in operating expenses as a result of lower volumes and cost-saving measures put in place by the management.

As of March 31 2021, the company had cash and cash equivalents of EUR182.8m including a drawn revolving credit facility of EUR99m, which was drawn as a precautionary measure and is held on the balance sheet. Global Blue has reported that it also has additional liquidity of EUR82.9m, comprising EUR63.9m-equivalent of capacity on a committed supplemental liquidity facility, EUR18.2m of uncommitted local credit lines and EUR800,000m available under its revolving credit facility.

Financial net debt at the end of the year was EUR546.2m compared with EUR403.9m for the same period a year earlier.

HURRICANE ENERGY PLC (“Hurricane Energy”)

The UK’s High Court rejected oil and gas producer Hurricane Energy’s controversial financial restructuring on 28 June 2021 based on the cross-class cramdown tool, which allows a restructuring plan to be confirmed by English courts even where one or more classes do not vote in favour of it, not being available. Hurricane Energy’s management, led by chief executive Antony Maris, had argued the plan was a “necessary step” to secure Hurricane’s future following production disappointmentswarning it would not be in a position to repay its USD230m of bonds next year.

Hurricane Energy’s plan featured two voting classes, being the group’s bondholders and its shareholders. The bondholders voted in favour of the plan whilst the shareholders voted against it. If approved, the plan would have given Hurricane Energy’s bondholders control in exchange for forgiving USD50m of debt and extending the maturity date on a further USD180m of bonds due to be repaid in July next year. The plan had been extremely unpopular with shareholders, including activist fund Crystal Amber, Hurricane Energy’s second-largest investor, holding a stake of more than 11 per cent.

Mr Justice Zacaroli refused to sanction the plan,  holding that the arrangement proposed was being done via a restructuring plan, rather than via a Part 26 scheme, which would have required approval from the shareholders,  “so as to override the rights of the shareholders.” 

Mr Justice Zacaroli concluded that the fact that there is a realistic prospect that Hurricane Energy will be able to discharge its obligations to the bondholders, leaving assets with potential for exploitation, “is enough to refute the contention that the shareholders will be no better off under the relevant alternative than under the plan”. He added there was “no other sufficient ground of urgency” for the bonds to be restructured now.

Hurricane Energy has said it is “considering all options, including an appeal”, warning that bondholders had “certain rights under the terms of the convertible bonds that, if enforced, could result in an acceleration of the convertible bonds and ultimately an insolvent liquidation of the company”.


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