Covid-19 related changes to State guaranteed Italian securitisations of NPLs (GACS) | Fieldfisher
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Covid-19 related changes to State guaranteed Italian securitisations of NPLs (GACS)






In order to face the Covid-19 emergency, Law Decree No. 34/2020 (“Law Decree 34”) has been published on 19th May 2020 in the Italian Official Gazette (Gazzetta Ufficiale).
Law Decree 34 is the latest of a number of law decrees issued by the Italian Government in order to provide support to Italian economy and several entrepreneurial sectors which are suffering as a consequence of the general lock down.
Among the others, Law Decree 34 provides, under article 32, for a provision applicable to Italian securitisation transactions carried out under Italian State guarantee scheme on the senior tranche of securitisations of NPLs (so called “GACS Securitisations).
The GACS Securitisation scheme  has been introduced through Italian Law Decree No. 18 of 14 February 2016 which has set forth the main provisions under which the Italian Ministry of Economy and Finance (the “MEF”) might grant a first demand guarantee (the “GACS Guarantee”) on the senior tranche of securitisation of NPLs. In particular, the GACS Guarantee was designed to facilitate the securitisation of non-performing loans to be sold by banks and financial intermediaries.
The GACS Guarantee is granted by the MEF and is an unconditional and irrevocable first demand guarantee which covers the senior tranches of the securitisation notes which have received “investment grade” rating. The granting of the GACS Guarantee is subject to various conditions and requirements. In particular according to one of the various requirements for the granting of the GACS Guarantee there is a provision whereby, upon the occurrence of certain performance triggers on the securitised portfolio [1], performance fees (for an amount not lower than 20% of the servicing fees) due to the servicer in charge of the debt recoveries activities on the securitised receivables shall be subordinated to the whole repayment of the outstanding principal of the senior notes. Provisions applicable to GACS Securitisations provide that certain amendments to the transaction documents agreed by the parties involved in a GACS Securitisation must be approved by the MEF.

The changes set under article 32 of Law Decree 34

Because of the Covid-19 restrictions applicable to enforcement proceedings and Court auctions the performances of the special servicers working on GACS securitisations have been impaired in the last months. According to article 32 of Law Decree 34, the MEF is now authorised to consent amendments to the transaction documents (including the terms and conditions of the notes) in order to enable the parties of the transaction to derogate to the subordination mechanism applicable to the payments of servicing fees linked to the performance of the recoveries activities.
Said suspension to the subordination mechanism of the servicing fees can be agreed and authorised by the MEF only in respect of fees due on the payment dates falling between 19 May 2020 and 31 July 2021, and as expressly stated by first paragraph of article 32, the request of authorisation to the temporary suspension of the subordination to the servicing fees must be grounded on an under-performance in recoveries caused by the legal measures introduced to deal with the Covid-19 emergency.
The request for consent on the proposed amendments shall be filed by the securitisation special purpose vehicle. The consent to the submitted request of changes might be authorised only upon completion of a preliminary investigation to be made by CONSAP S.p.A., the State controlled company in charge of the management of the funds made available by the MEF in connection with the GACS Guarantee (as set out under article 13, first paragraph of Law Decree no. 18 of 14 February 2016).
The temporary derogation to the applicable subordination mechanisms and the related amendments to the transaction documents can be granted provided that such changes will not trigger any downgrading of the rating of the Italian State guaranteed senior notes.
Law Decree 34 must be converted into law within 60 days from its publication within the Italian Official Gazette. Said provisions on GACS Guarantee contained in Law Decree 34 might be subject to changes upon conversion of the latter decree.
Carmelo Raimondo
Matteo Colavolpe

[1] In particular, in case the ratio between the collected net proceeds (incassi netti cumulati) and the envisaged net proceeds (incassi netti attesi) have a ratio lower than 90%.