Italy’s government on 13 December approved Law Decree “Destinazione Italia” that is intended to boost Italian corporate bond market financing, with Moody’s flagging as credit positive changes to Law 130/99 that affect certain aspects of securitisations and covered bonds.

Italian prime minster Enrico Letta and minister of foreign affairs Emma Bonino presenting the Destinazione Italia project

Changes to the Italian legal framework governing obbligazioni bancarie garantite (OBG) issuance have been expected for some time, with DBRS in October commenting on draft amendments to Law 130/99 and how they would affect the rating agency’s view on OBGs.

Expanding covered bond-eligible collateral to include SME loans is said to have been under discussion, but this does not appear to have taken place as part of the December legal change.

Law firm White & Case said that the decree is aimed at facilitating financing transactions for Italian issuers, for example by simplifying and extending the securitisation regime, and noted that it allows banks to issue new collateralised bonds (as opposed to covered bonds) backed by a broader range of assets, such as SME receivables.

Moody’s on 19 December welcomed the Law Decree as including measures that are credit positive for Italian securitisations and covered bond programmes because they will reduce certain risks associated with servicer and debtor defaults. It said that the amendments to Law 130/99 improve the segregation of transaction funds and, in case of debtors’ default, limit potential clawbacks of prepayments.

With respect to the former, the rating agency noted that the amendments clarify the circumstances under which collections and other cash deposits relating to securitisations and covered bond programmes can be effectively segregated in case of servicer insolvency, and spell out the consequences of such segregation.

“As a result, the amendments will mitigate legal risks associated with servicer default at both the special purpose vehicle (SPV) and servicer levels,” said Moody’s.

The new provisions also remove the ability to claw back prepayments made by commercial borrowers under any type of securitised claim or cover pool asset, according to the rating agency, which will benefit covered bond programmes backed by commercial mortgages.

“SPVs will no longer risk having to return collections from prepayments in case of debtors’ bankruptcy and there will be no need for prepayment reserves or other measures to mitigate clawback risk,” said Moody’s.

The law decree is effective immediately upon publication in the Italian official gazette and has to be converted into law within 60 days of publication.