Real estate securitisation transactions - remarks and suggestions

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Giulio Tognazzi
Caiazzo, Donnini, Pappalardo & Associati, Milan
giulio.tognazzi@cdplex.it

Introduction

The so-called Growth Decree (Law Decree 34 of 30 April 2019) was converted into law by Law 58 on 28 June 2019. It has introduced a number of changes to the Securitisation Law (Law 130 of 30 April 1999).

The legal regime of real estate – registered assets securitisation transactions

The Securitisation Law (Article 7.1(b), in particular) already contemplated the possibility for the securitisation vehicles to: (1) acquire the property or other rights in rem on real estate assets and registered assets or other rights to use such assets; and (2) put in place a securitisation of the revenues deriving from such assets^.[1]

A securitisation transaction is not based on the traditional concept of receivables transfer and issuance of notes.

Given the aforementioned, many commentators soon highlighted that the legal regime introduced in 2018 was much too light to regulate a new model of securitisation transaction.

The Growth Decree has provided (mainly by introducing a new Article 7.2 in the Securitisation Law) some clarifications and new provisions essentially dealing with the management and segregation regime. In particular:

• all vehicles carrying out securitisation transactions under the new Article 7.2 of the Italian Securitisation Law are prevented from carrying out any other kind of securitisation transaction;

• the management and administration of the securitised assets must be delegated to a professional asset manager;

• the assets and rights securitised for the benefit of the noteholders and the hedging counterparties shall be clearly identified for each transaction;

• the assets and rights under Article 7.2(c), the revenues deriving thereof and any other right acquired within the securitisation transaction are ring-fenced from the assets and rights belonging to the vehicle and those of any other securitisation transactions;

• the segregated assets are the only assets on which the noteholders and other creditors would have recourse; and

• given the segregation regime, no actions from any creditor different from the noteholders or lenders or the hedging counterparties are allowed on the segregated assets.

Some preliminary remarks

Many commentators have been sceptical about the new legislation and the changes introduced with Article 7.2 of the Securitisation Law, considering that it introduced a completely new model of securitisation. Despite its novelty in the context of the Securitisation Law, this kind of securitisation transaction is not entirely new in Italian legislation, as it appears to be based on the model of the securitisation transaction of public real estate assets, regulated by Law Decree 351 of 25 September 2001 (‘SCIP transaction’ or Società Cartolarizzazione Immobili Pubblici).

It is worth highlighting that compared to the SCIP transaction, one difference is constituted by the necessarily public nature of the SCIP transaction. Another difference (which seems even more relevant) is represented by the role of public entities involved at that time, which assumed the double role of vendors and managers of the buildings.

The regulation of Article 7.2 of the securitisation law recalls the provisions of the ‘ordinary’ securitisation transaction, to the extent compatible. Again, the comparison with ‘normal’ securitisation transactions shows some important differences, starting from the different risk profile.

Some suggestions

Considering the aforementioned, it may be appropriate to adopt the following safeguards in a transaction:

• be very careful in the asset selection, paying attention to the risks deriving therefrom, with the aim of putting as few risks as possible on the vehicle;

• conduct extensive due diligence on the real estate or registered assets and the vendor (more extensive than it would be usual for a normal receivable transaction) and the related risks;

• set up a particularly safeguarding contractual set of clauses for the buyer in the contracts to acquire the assets, according to the best market practice in this specific sector; the contractual documentation shall also allow the vehicle to tackle any unexpected problem;

• conduct a strict assessment of the competence and soundness requirements for the asset manager, during the selection phase; and

• set up a contractual agreement with the asset manager that aims at transferring on it as many responsibilities as possible, so as to mitigate the same risks on the securitisation vehicle.

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