New rules outlining for the first time the ability of Italian alternative investment funds (AIFs) and EU AIFs to engage in direct lending in Italy to companies are now law in Italy, MF Milano Finanza writes today, outlining that the rule has been inserted in the Law Decree n. 18 of February 14th, which is the same Decree who introduces a reform of cooperative local banks (Bcc) and introduces a public state guarantee to secure securitisations of nonperforming loan receivables- The new rules are enforce since last Tyesday February 16th.
Article 17 of the Law Decree specifies that two new articles of Consolidated Financial Act (Testo Unico della Finanza) have been added. These are art. 46-bis and 46-ter which respectively provide that Italian closed-end alternative funds and EU closed-end alternative investment funds are allowed to issue direct lending with exception to consumer loans.
The Treasury and the Bank of Italy shall lay down the detailed rules to be applied to Italian AIFs engaging in direct lending. Italian AIFs engaging in direct lending shall adhere to the Italian risk database held by the Bank of Italy (Centrale dei Rischi).
This is a real news as Italy still did not have an esplicit law which allows investment funds to lend directly. This possibility had been given indirectly through the Law Decree n. 91/2014 which provided that foreign and Italian credit funds (as well as securitization SPVs and Italian insurance companies) won’t pay anymore the 26% witholding tax on interests and profits coming from credit lines issued directly to Italian companies. However that practice was limited to funds that did not use leverage so that the majority of international private debt operators weren’t able to benefit from that law.
A new Decree one year ago, so-called “Investment Compact”, introducee instead a measure that opened up direct lending activity to all kind of funds, including the leveraged ones as it canceled the provision of no leverage for been allowed not to pay the 26% witholding tax.
Giuseppe De Palma and Ferdinando Poscio partners of Clifford Chance law firm (who just published a client briefing on the matter) told MF Milano Finanza, that “no funds have been trying to lend directly to companies in Italy. The Decree has now introduced a new chapter in the Consolidated Financial Act, dealing with credit funds. While funds are still not formally listed under Article 106 of the Italian Banking Act, the new provisions are much clearer in confirming that, subject to certain conditions, Italian and EU ‘alternative investment funds’ (so called ‘AIFs’) can indeed engage in lending activities in Italy, including in the primary market”-
However, the two lawyers added, “The real question is to what extent the Decree has effectively removed the pre-existing Italian licensing restrictions preventing non-authorised financial investors (such as CDO’s, CLO’s) from taking part in Italian lending transactions directly. For these investors who are typically not managed in Italy nor in the EU or qualifying as Italian AIFs or EU AIFs, the Italian regulatory restrictions will still apply”.