This content is from: Local Insights


The long-expected decree of the Ministry for Economy and Finance, to be issued in accordance with the provisions of Article 41 of Law 448 of December 28 2001, has been published.

Regions and local authorities now have to comply with different guidelines to access the capital markets and to operate in derivatives.

Regions and local authorities are required to provide details of their recently closed financial transactions, including short-term bank advances, loans, derivatives, note issues and securitization transactions, to the Ministry on a quarterly basis. Regions and local authorities must coordinate their efforts to access the capital markets in the event of medium and long-term financing transactions or securitizations in the amount equal or higher than €100 million ($128 million). The terms and conditions of the relevant transactions are to be sent to Ministry, which has 10 days from receipt to give indications as to the best time to enter into the proposed transaction. Failing such an indication, note issues may be finalized within 20 days from receipt of the Ministry's initial notice; securitizations may be finalized within the term indicated by the relevant region or local authority. The prior favourable opinion of the Inter-ministerial Committee for the Credit and Saving (Comitato Interministeriale per il Credito e il Risparmio) (CICR) is still required in the event of notes issued by ordinary regions or whenever expressly required by law.

The Decree also sets forth provisions on derivatives to be entered into by regions and local authorities. The requirement to hedge against currency risks is reiterated together with confirmation as to the use of interest rate swaps, forward rate agreements, interest rate caps and collars to hedge against interest rate fluctuations. The Decree also addresses a sensitive area, that of using derivatives to restructure existing debt. The Decree confirms that derivative transactions cannot be structured in such a way as to extend the maturity of the underlying debt and indicates that the flows received by regions or local authorities must be equal to those paid pursuant to the underlying debt without implying at the time of the trade an increasing profile of the actual values of the single flows of payment. The only flexibility allowed is represented by the possibility of introducing in the trade an upfront not higher than 1% of the underlying debt.

In substance the Decree confirms a criterion implicit in the existing legislation: derivatives must be entered into for hedging purposes and not as a financing instrument.

The need to operate with intermediaries with adequate ratings is stressed as well as the indication to diversify counterparties' risks avoiding concentration of transactions with a single counterparty for more than 25% of the aggregate derivative transactions of the relevant region or local authority.

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