Trade Alert - April 2014, Issue 4

On April 24, 2014, it was reported that Italy's two largest banks, Intesa Sanpaolo SpA ("Intesa") and Unicredit SpA ("Unicredit"), which combined, control a third of the Italian loan sector, unveiled a plan to sign an agreement with U.S. private equity house, Kohlberg Kravis Roberts, and U.S. restructuring adviser, Alvarez & Marsal, to create a special purpose vehicle to pool and manage around EUR 2bn distressed loans and make them easier to sell, if necessary.

Intesad has recently been in talks with distressed debt investors to sell some of the EUR 27bn of non-performing loans that have been placed in its internal bad bank.

Italian Flag

Destination Italy?

In December 2013, the Italian Government launched Destinazione Italia consisting of around 50 measures to foster inbound investment and to increase Italian companies' competitiveness. As part of these measures, Article 12 of Decree No. 145/2013 (the "new law") provides key changes to the Italian Securitisation Law (Law No. 130 of 30 April 1999) which may result in favourable options for loan traders acquiring Italian debt in the secondary market.


The new law opens up the possibility for non-bank investors to acquire Italian loans through an Italian securitisation special purpose vehicle ("SPV") (without the intermediation of a bank), provided the structure meets certain criteria.

Italian securitisation structure requirements:

  • A medium-long term secured loan is extended by an Italian bank or by the Italian lending office of a foreign bank.
  • The loan remains on the books of the lending bank for a reasonable period of time before it is transferred to the securitisation SPV.
  • No commitment in relation to the capital markets take-out is given by the ultimate investors prior to the disbursement of the loan, i.e. the bank faces full syndication risk.

If such requirements are satisfied and the transaction properly qualifies as a securitisation from an Italian legal and tax perspective:

  • The bank loan and the related security package (including mortgages) can be transferred to a securitisation SPV which funds the purchase of the loan (single loan or on a portfolio basis) through the issue of asset-backed notes purchased by the ultimate non-bank investors.
  • Amounts due under the notes may be paid to any "white list" country (i.e. those listed in the Ministerial Decree of 4 September 1996 as amended) investor with no withholding tax, and no mortgage tax is applicable upon transfer of a mortgage bank loan to the securitisation SPV.
  • In addition, as long as the securitisation SPV issues a single tranche of notes, from a prudential supervision perspective the original lending bank is not required to retain any portion of either the loan or the notes.
  • Notes issued by the SPV can be subscribed or purchased by one single qualified investor without any re-characterisation risk as a loan.


Banking Licence required - extending credit (including making loans, purchasing receivables and issuing guarantees) in Italy is a restricted activity which can only be carried out by domestic Italian financial institutions or foreign financial institutions licensed by Banca D'Italia or pursuant to EU legislation. Prior to the new law, non-bank investors entered into indirect arrangements or participations to achieve exposure to Italian borrowers, but an LMA Participation is not a panacea, and risk remains of regulatory and tax authority "look-through".

IBLOR Structures - historically lending by non-bank entities was by way of "non-transparent Italian Bank Lender of Record" structures under which an Italian bank lends directly to the Italian borrower and unlicensed participants provide cash-collateralised guarantees to the bank (e.g. SEAT) or by way of "transparent Italian Bank Lender of Record" structures under which participants are generally subject to withholding tax, unless grossed-up by the Borrower.

Tax - interest on loans paid by an Italian company to non-Italian resident lenders is generally subject to 20% withholding tax (unless a double taxation treaty applies, in which case the rate may be reduced). As described above, there is a withholding tax exemption for interest on bonds issued by SPVs operating under the Securitisation Law to non-resident lenders (including institutional investors not subject to tax - e.g. funds or trusts) resident in "white list" countries.

Trust and Parallel Debt Structures - not expressly recognised or tested under Italian law. Italian law loans commonly use a mandatario con rappresentanza which exercises the rights of the lenders under the loan and security documents as agent. A separate security agent can enforce rights on behalf of the lenders (although the security itself must still be granted directly to the lenders).

Subordination of Shareholder loans - a new lender may be subordinated to all other debts of the Borrower if the loan it acquires was granted by an existing shareholder of the borrower at a time when (i) the company's indebtedness was excessively high compared to shareholders' equity, or (ii) the company's financial situation was such that a shareholders' contribution would have been reasonable under the circumstances.

Claw-back Remedies - payments may be clawed-back by a receiver in bankruptcy should the Borrower become insolvent within one year from the date on which the relevant payment is made. Such equitable subordination may be disapplied in part in relation to new loans provided in the context of specific restructuring procedures under Italian legislation. Payments made to a securitisation SPV are not subject to claw-back by operation at law.

Special Note:

Thanks to Andrea Giannelli at Legance for assistance with the Italian Jurisdiction Update.


Click here for an article by David Cottle, Associate


Glitnir hf. Creditors’ Meeting, Reykjavik 9 April 2014

  • Total Accepted Claims at 09.04.14: ISK 2,369bn (Registered claims ISK 3,239bn)
  • Total Assets at 31.12.13: ISK 928bn (ISK 593bn Non- Icelandic – 64%)
  • Closing Cash Balance - Jan - Feb 2014: ISK 557bn
  • Islandsbanki: Total Assets at 31.12.13: ISK 866,009m

The currency control exemption application is still being progressed with the Central Bank of Iceland. Timing remains unknown. Next open creditors’ meeting will be held on 20 November 2014 in Reykjavik.

Please click here to view our full summary document along with Glitnir’s Current Business Plan and Financial Information Package.

Kaupthing hf. Creditors' Meeting, Reykjavik, 10 April 2014

  • Total Accepted Claims at 03.04.14: ISK 2,732bn (registered claims ISK 4,196bn)
  • Total Assets at 31.12.13: ISK 778bn (ISK 567bn Non-Icelandic – 73%)
  • Closing Cash Balance - Jan - Feb 2014: ISK 418bn

The composition is subject to an exemption from currency controls granted by the Central Bank of Iceland after consultation with the Minister of Finance and Economic Affairs.

Recent significant cases were brought before the District Court of Reykjavik including the dispute over the a priority claim of EUR 226m lodged by Dromi (see link below).

The next open creditors’ meeting will be held on 19 November 2014 in Reykjavik.

Please click here to view our full summary document along with Kaupthing’s Financial Information Package. You can also view a full copy of the Kaupthing Creditors’ Report here.


  1. CYPRUS SHARES – share only sales are increasing. Bank of Cyprus has issued a transfer procedure for shares, there is no requirement for shares to transfer pro rata with deposits. KYC requirements are rigorous with Bank of Cyprus and trades are generally made conditional upon Buyer's diligence of Seller and its holding.
  2. PRISA – several banks are selling loans in the Spanish media company Promotoria de Informaciones following its EUR 3bn restructuring in December 2013. Buyers should request the equitable subordination representation on trade date and transfer by assignment (not novation) to ensure the security is maintained for the benefit of the new lender.
  3. TUNSTALL – the UK telehealth and telecare products maker will meet lenders on 12 May 2014 to provide clarity on its situation following poor earnings after its October 2013 GBP 350mm-equivalent refinancing of its senior and mezzanine debt.
  4. FCC – the Spanish construction and infrastructure group, Fomento de Construcciones y Contratas, S.A. (FCC), has recently engaged in a global restructuring of its financial indebtedness and entered into a EUR 4.512bn financing agreement which comprises two tranches. The agreement matures in four years which may be extended to six years in the event of conversion of Tranche B into FCC shares. The Company has also recently announced a consent solicitation in respect of its EUR 450m 6.50% Unsecured Convertible Notes due October 2014.
  5. PORTFOLIO DEALS – apart from the Italian portfolio mentioned in this update, Irish Bank Resolution Corporation (IBRC) continues to sell off its EUR 9.3bn distressed commercial real estate portfolio, Project Stone.


Revised LSTA Documents - 24 April 2014

The U.S. Loan Syndications and Trading Association ("LSTA") has updated various LSTA documents for Par and Distressed Trade Transactions. The amendments apply to all trades with a trade date on or after 24 April 2014 and incorporate provisions including:

  • (i) the Foreign Account Tax Compliance Act (FATCA);
  • (ii) changes to the LSTA's participation agreements (to bring in line with the various changes made to the Collateral Annex last year); and,
  • (iii) other non substantive changes.


David Cottle

Contact: David Cottle
+44 (0)20 7170 8722

David Cottle is a Senior Associate advising on secondary debt and claims investments, loan hedging, NPL portfolios, and credit/interest rate/FX derivatives. Prior to joining Cadwalader David was a Vice President (CEEMEA Emerging Markets) at Citigroup London.

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