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Italy enacts new law on securitization

On April 22 1999, the Senate Commission on Finance approved Law No. 130 of April 30 1999 (Law No. 130) on securitization of receivables.

Law No. 130 will apply to securitization transactions made through an assignment for consideration of cash receivables (either existing or future receivables), provided that sums payable by the assigned debtors are exclusively destined to the satisfaction of the rights incorporated in the securities issued to finance the purchase of such receivables, and that the assignee is a company having the sole purpose of performing one or more securitization transactions.

Italian legislators, therefore, have chosen an SPV model. However, pursuant to article 7 of Law No. 130, the securitization provisions also apply to securitization transactions made through the granting of a financing by an SPV to the assignor as well as to assignment of receivables to investment funds whose purpose is the purchase of receivables.

Relevant aspects of the new law are that:

l The receivables related to each transaction constitute in all respects autonomous property independent from that of the SPV and from those receivables pertaining to other securitization transactions. Enforcement against each portfolio of receivables can only be made by the holders of the notes issued to finance the purchase of the receivables against the exclusion of any other creditor.
l Special provisions have been provided in order to limit negative effects of bankruptcy. Indeed no clawback action towards payments made by the assigned debtors is permitted and the general period for setting aside has been reduced for securitization transactions entered into pursuant to the new law respectively from two years to one year to six or three months.
l The SPV must be a financial intermediary and must comply with relevant legislation and supervisory regulations, but the minimum stock capital requirement of ITL 1 billion will not apply. In addition the general provisions of law applicable to corporates pursuant to which companies other than banks cannot issue notes for an aggregate amount exceeding their stock capital will not apply to SPV.
l The assignment of receivables becomes effective against the debtors and third parties upon publication in the Official Gazette of the Republic of Italy of a notice of assignment.
l The new law requires the drafting of an offering circular even if the securities to be issued are offered to professional investors and in case of a public offer, the transaction must be given a rating by a rating agency.
l Notes issued by the SPV benefit from the provisions of Legislative Decree No. 239 of April 1 1996 (as amended and supplemented) pursuant to which payment of interest and other proceeds under the notes may be made without withholdings or deductions to certain categories if noteholders, and subject to compliance with certain procedures.

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