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New Italian rules on commercial paper

Law Decree No 83 of June 22 2012, converted into law with amendments by law No 134 of August 7 2012, is part of a number of new laws recently enacted by the Italian technicians' government aimed at spurring Italian economy.

Article 32 of Decree No 83 introduced significant new rules on commercial paper whose issuance may represent an alternative source of funding for Italian companies which are facing difficulties in obtaining loans from the banking system.

In more detail, Article 32 of Decree No 83 has amended Law No 43 of January 13 1994 relating to commercial paper. According to these amendments, the maturity of commercial paper has been modified as follows.

Under the old regime, commercial paper could have a minimum maturity of three months and a maximum maturity of 12 months (starting from the relevant date of issue). Under the new regime, commercial paper can now have a minimum maturity of one month and a maximum maturity of 36 months (staring from the relevant date of issue).

Commercial paper may be issued by companies (other than informal partnerships, general partnerships and limited partnerships), cooperative companies and mutual insurance companies other than banks and micro-enterprises (as defined under EC recommendation 2003/361/EC).

Pursuant to Decree No 83, companies whose shares are not listed on markets are allowed to issue commercial paper provided that four conditions are met.

The first is that the issuance is assisted by a bank, an investment company or other entities indicated in Decree No 83 acting as sponsor which will assist the issuer during the relevant procedure as well as in the placement of the commercial paper issued. However, companies other than small and medium-size enterprises (SMEs, as defined under EC recommendation 2003/361/EC) are allowed to issue commercial paper without being assisted by a sponsor.

Secondly, the sponsor must hold, until the relevant maturity, certain minimum percentages of the commercial paper issued depending on the amount of the issue as indicated in Decree No 83 (an exemption from this rule occurs when the issue is guaranteed for at least 25% of the relevant value by banks or other authorised entities referred to in Decree No 83).

Thirdly, the latest financial statements of the issuer must be audited by auditors or by a duly authorised auditing company.

The fourth condition is that the commercial paper is subscribed exclusively by, and subsequently circulate exclusively to, professional investors which are not, whether directly or indirectly, members of the relevant issuer.

The new rules also outline a number of duties to be fulfilled by the sponsor.

Among others, the sponsor has to classify the issuer, at the time of the issue, according to at least five categories depending on the creditworthiness of the issuer (excellent, good, satisfactory, weak and negative) which, in the event of guaranteed issues, are related to the level of the relevant guarantee.

The classification of the issuer is published by the sponsor.

According to Decree 83, commercial paper may now be issued also in dematerialised form under the procedure set forth by such decree.

As far as the tax regime is concerned, Decree 83 has introduced new provisions which are more favourable for issuers.

As a consequence, commercial paper issued in dematerialised form is now exempted from stamp duties. In addition, certain limits to the deductibility of interest paid on commercial paper are no longer applicable (this rule applies provided that commercial paper is subscribed by qualified investors which are not, whether directly or indirectly, members of the relevant issuer) and the withholding tax on interest paid on commercial paper issued by banks and certain companies is no longer applicable.

Susanna Beltramo and Bruno Zerbini

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