For decades, the Italian loans market had been dominated by banks due to local regulatory requirements. The limitations of this model became evident during the global financial crisis in 2008 and the sovereign debt crisis in the mid-2010s.

Parliament took stock and kick-started a number of reforms in 2012 to diversify the sources of debt funding for Italian businesses. These reforms included improvements in the framework of debt securities and their tax treatment, and derogations (where notes are listed on a regulated exchange, or reserved for professional investors) from corporate laws limiting the maximum amount of permitted debt. Further reforms were passed to allow lending by investment funds, insurance companies, SACE S.p.A. (Italy's export credit agency) and securitisation SPVs.

Italy took a further step forward in 2016, introducing a regulatory pathway to facilitate loans origination by foreign debt funds, by supplementing the Finance Act to clarify that EU alternative investment funds ("AIFs") can make loan investments subject to certain conditions and limitations. The Bank of Italy then supplemented the regulation on collective management of savings to specify how EU AIFs could apply to the Bank of Italy for clearance to grant direct credit in Italy and to purchase Italian debt.

Both Italian AIF's and EU AIF's are subject to the Italian Transparency Rules which apply to banks and financial intermediaries when lending to Italian businesses. We have reported on these measures here, reflecting the ideas and concerns exchanged in a panel discussion on direct lending in Italy in March 2017.

In this new article, we discuss a few more recent significant developments. Direct lenders have increased their market share, with international debt funds taking the lead on innovative funding structures in specialised sectors such as infrastructure and real estate.

Italian investors have also taken stock and engaged in leveraged finance with increasing appetite and ticket sizes, especially in support of private equity sponsors.

With banks and traditional lenders challenged by the COVID-19 epidemic and the recent geopolitical events in Europe, opportunities for direct lenders are bound to increase further.

Please see our Direct Lending in Italy article for further information

Authored by Carlo Massini.