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An Overview of the Italian NPL Market

Current status and future opportunities

In 2016 the gross book value (GBV) of NPLs on Italian banks’ balance sheets exceeded Euro 200 billion. Interest from foreign specialized investors has increased considerably in recent months. During 2016 we have seen an increase in the number of transactions but it is also true that this market has so far not expressed all its potential. Driven by the aim of helping Italian banks clean up their balance sheets, the Italian Government has put in place several initiatives both to facilitate the disposal of the NPLs and to reduce their occurrence going forward. These initiatives fall into four categories: (A) the introduction of a State guarantee scheme (known in Italy as “GACS”) whereby the Italian Treasury guarantees senior tranches of ABS backed by Italian NPLs; (B) the improvement of Italian bankruptcy and enforcement proceedings, (C) the introduction of new forms of security interests, and (D) opening up the market to direct lending by alternative investment funds (AIM). The idea is to make the Italian lending market more creditor friendly overall which in turn should encourage the further funding of the real economy.

The “GACS” and Atlante

The “GACS” (“Garanzia Cartolarizzazione Sofferenze” or “Non-Performing Loan Securitisation Guarantee”), is a time-limited tool in the hands of the Italian banks in that it expires in October 2017 (i.e. 16 months from enactment) unless extended by the Italian government for a further 18 months. Any such extension would be subject to the approval of the European Commission. Under this scheme the Italian Treasury guarantees senior tranches of Notes issued by Italian special purpose vehicles (SPVs) that are backed by NPLs originated by Italian banks and financial institutions. The GACS would cover interest and principal payments provided that the securitisation meets certain eligibility requirements.

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