– by Giuseppe Rumi
– Abstract and comments by Vinod Kothari
[Giuseppe Rumi is associated with Vita Samory, Fabbrini e Associati, Milan. His article is in response to Gianpaolo Salsi's on the same subject – Gianpaolo Salsi's article was abstracted on this site – click here. Full text of Rumi's article is to be published soon – here we are publishing an abstract with certain comments. We thank the author for providing his article for preview.]
Other links on this site on Italian securitization law
Giuseppe Rumi has written an article on Italian securitization law, soon to be published.
The author is generally critical about the shortcomings in the law; at the same time, he makes important suggestions as to the improvements. The author says that the law "is far from solving the problems relating to the securitisation of Italian portfolios." and that enough time has not been given to reviewing the drafting of the law, which is neither complete, nor free from ambiguity. More significantly, the author laments the fact that the "Law 130 brushes aside the requirements for investor protection and gives scarce attention to the subjects of "investors' guarantees" and "credit enhancement".".
After tracing the genesis of the law, the author makes certain interesting comparison between common law principles and the Italian securitization law.
As regards SPVs, the Italian law permits formation of both a single-issuer SPV as also a multiple-issuer conduit. In case of such a multi-conduit, the law requires that each portfolio must be segregated from the others and no creditors other than the noteholders may bear rights on the relevant portfolio.
The author feels that though the legislative provision regarding multi-conduits is a wholesome provision, "the legislative provisions concerning the multiconduit vehicles give rise to great concerns." On the basis of past experience of legal difficulties, the author feels that "the concerns for commingling risks in Italian multiconduit SCCs (SPVs) seem further justified." Vinod Kothari comments – the author's views are not without a basis. Unless the corporate law allows, such as has been done by some countries by creation of a separate class of companies called "protected cell companies", the segregation of assets and liabilities of a company, it is quite possible that the assets belonging to investors of a particular class may be subject to bankruptcy claims of investors in another series.
The author is also critical of the wide array of discretionery powers granted to the Italian SPV . The law permits the SPV to carry out unspecified "ancillary activities for the success of the transaction" and reinvest the returns of the securitisation not directly owned to the noteholders in other financial activities. "The risk of abusive interpretation of the unclear definition of ancillary activities performable by SCCs appears to be fully realistic, especially in the case of insolvency of the vehicle", says the author.
The law makes certain provisions regarding two tier SPVs, commonly used in US securitizations, which according to the author is neither very necessary nor helpful in the Italian context. The author reveals that inspite of the implementation of the present law, some of the securitizations in Italy recently have still followed the old law, that law, law 52.
The author is highly critical as to the law limiting the scope of securitisable assets. The law permits securitization of "pecuniary credits, either actual or future". As a result, Law 130 is not applicable to either repackaging and synthetic transactions. The author also doubts whether the law would cover receivables "which do not derive from a current portfolio." There is also a significant limitation regarding future receivables – they can be securitised only if they are identifiable. The practical application of this limitation seems to appear rather problematic. Law 52 provisions legitimised assignments of future receivables only if they derive from agreements to be entered within 24 months. Though such a time limit has not been set in the law, nevertheless, some sort of limitation is likely to be implemented by the Italian Stock Exchange Commission "in order to avoid the jurisprudential uncertainties on the lawfulness of such assignments and to solve the current uncertainties." [Vinod Kotharicomments – in Gianpaolo's article, there is also a reference to Italian supreme court ruling in this regard.]
The author also laments the lack of regulation with regard to issuance of securities by the SPV.