Fitch: Italian Insolvency Reforms Positive but Still Untested


London/Milan – Changes made to Italy’s insolvency laws since mid-2015 and measures introduced to reduce the length of time creditors need to wait before settling claims are positive, but we are still at an early stage and reforms have yet to be put into practice, says Fitch Ratings.

Fitch Ratings state that the most significant change included in the Decree Law 59 of 3 May 2016, is the ability to insert a clause into lending agreements allowing the automatic transfer of ownership of real-estate assets held as collateral to a creditor once a corporate or SME borrower is in default. This will get rid of the need to go through the courts, which will free up capacity in the Italian judicial system and enable courts to focus on addressing the backlog of non-performing loans (NPL) which weigh heavily on Italy’s banking sector.

As reported in the press, government representatives have stated that this should significantly shorten asset recovery times to around seven to eight months.

If the reforms achieve their key goals, namely to shorten court proceedings for the forced sale of collateral – including, for example, the ability to sell more assets out of court – and to cut bankruptcy processing costs, they will improve the performance of new NPL securitisations. This could stimulate investor interest and support a government-sponsored securitisation scheme launched in February 2016 which aims to help shift NPLs off Italian bank balance sheets. The Atlante fund, established in April, can also invest in NPL securitisations, but given the size of the fund, its capacity for investment is limited relative to the amount of NPLs in the Italian banking system.

We expect the bulk of new NPL transactions to be backed by corporate and SME exposures and these are set to benefit the most from quicker and cheaper creditor work-outs under the new reforms. In the past, out-of-court resolutions proved difficult and protracted, due to the large number of creditors typically involved, and the absence of mechanisms forcing minority dissenting creditors to accept the terms of a restructuring strategy agreed between the debtor and the majority of creditors.

Additional information regarding how insolvency reform is expected to impact Italy’s NPL securitisation market is available in a new report published today by Fitch Ratings.

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