ITALY AND THE SECURITISATION AND

COVERED BOND MARKETS

WIDE SUSPENSION BY THE ITALIAN GOVERNMENT ON

LOAN REPAYMENTS BY INDIVIDUALS AND SME'S HAVE

BEEN INCLUDED AMONG THE EMERGENCY RELIEF

MEASURES APPROVED

Through the so called "Decreto Cura Italia" (the "Covid

Decree")

and enterpreneurs dealing with the isolation and disruption

caused by the spreading of the pandemic. Core measures to

mitigate the consequences of the turmoil include payment

holidays under loan agreements.

THE COVID DECREE IN BRIEF

The Covid Decree applies to the entire Italian territory and

clearly aims at alleviating the consequences of the heavy

lockdown measures that have been adopted by the Italian

Government, that have become more and more restrictive in

proportion to the worsening of the health situation in Italy

The Italian Government has issued several decrees dealing with the outbreak of the Coronavirus, including Law

Decree no. 6 of 23 February 2020, Law Decree no. 9 of 2 March 2020 and Decrees of the President of the Council of

Ministers dated 23 February 2020, 1 March 2020, 4 March 2020, 8 March 2020, 9 March 2020 and 11 March 2020.

executed for the purpose of purchasing a "first home" real

estate property ("prima casa" or "unità immobiliare da adibire

ad abitazione principale")

and interest instalments for no more than 2 times during the life

of the relevant mortgage loan, provided that the suspension

can have an aggregate maximum duration of 18 months (the

"Suspension")

is consequently extended for the same period of time and, once

certain circumstances. Pursuant to the Temporary Regime the

Suspension can be requested upon occurrence of certain

adverse events (after the loan is advanced and no later than 3

years from the date of request) affecting the borrower including,

in addition to the termination of employment relationships,

borrower's death or recognition of disability or civil invalidity

(already existing under the previous legislation)

, the following:

• the suspension from work or reduction of working hours for

a period of at least 30 days even where the issuance of

The payment holiday is not applicable to any loans that (i) at the time of the request have been delinquent for more

than 90 consecutive days, or have been accelerated (decadenza dal beneficio del termine) or terminated (risoluzione)

or where the mortgaged asset was subject to enforcement procedures started by third parties; (ii) benefit from public

subsidies (agevolazioni pubbliche) and (iii) are insured for the same events covered by the Suspension.

The right to request the payment Suspension has been implemented by the "2008 Budget Law" (Italian Law number

244 of 24 December 2007, as amended in respect of this subject matter by Law no. 92 of 28 June 2012).

With the exclusion of termination by mutual agreement, termination for age limits with entitlement to old-age or

retirement pension, disciplinary dismissal, resignation not linked to a cause and, with respect to relationships pursuant

during a quarter falling after (or within the shorter term

suffered as a consequence of the shutdown or restriction of

the borrower's business activity in connection with the

provisions issued by the authorities under the Coronavirus

emergency.

The costs of the Suspension are partially borne by a fund

(Fondo di solidarietà, the "Fund")

. The Temporary Regime

Suspension and contextually benefit from the aid of the Fund.

amount not exceeding €250,000 and that has been in

amortisation for at least 1 year. The Covid Decree disapplied

other existing requirements, including those relating to the

borrower's income threshold, also with respect to the possible

access to the aid provided by the Fund

requirements, the bank should give effect to the Suspension

within 30 business days from the date on which CONSAP

(Concessionaria Servizi Assicurativi S.p.A.), as the managing

company of the Fund, notifies the borrower that the aid of the

Fund is granted or, in the case of loans subject to securitisation

legislative framework will remain applicable.

Before issuance of the Covid Decree, the existing legal framework established that the Fund covers the borrowing

costs for an amount equal to the interests accrued on the loan amount outstanding during the Suspension, calculated

by using the reference interest rate applied to the mortgage loan, net of the margin applicable to the reference rate

(spread), which will be borne by the debtor together with the principal component when the Suspension expires.

enterprises (jointly, "SMEs"), so identified in accordance with

the definition set by the European Union

(esposizioni creditizie deteriorate) by: (i) freezing the lenders'

right to revoke credit facilities; and (ii) suspending by operation

of law the payment of all mortgage loans and other financings

repaid by way of instalments, in each case until 30 September

2020.

as a direct consequence of the Coronavirus outbreak.

• revocable credit facilities (aperture di credito a revoca) and

loans granted against credit advances (anticipi su crediti)

existing as at 29 February 2020: any amounts granted

(whether utilized or not) may not be revoked, in whole or in

part, until 30 September 2020;

• loans not subject to instalment amortisation plans (prestiti

non rateali) falling due before 30 September 2020: these

loans and any accessory rights relating thereto are extended

conditions originally agreed and without further formalities;

amortisation plans (finanziamenti a rimborso rateale): the

suspended by operation of law until 30 September 2020.

The amortisation plan relating to the suspended instalments

(together with any accessory rights relating thereto) is

consistently extended without further formalities in a manner

which ensures that no higher charges are borne by the

lender or the borrower. SMEs have also the right to request

the suspension limited to the sole principal component of the

instalments.

favore delle piccole e medie imprese), which may guarantee,

applies. Such guarantee is issued by the dedicated fund free of

charge and covers both principal and interest payments.

BANKING INDUSTRY INITIATIVES FOR ITALIAN SMES

Before the approval of the Covid Decree, the Italian Banking

Association (Associazione Bancaria Italiana, "ABI") already

promoted the conclusion and extension of a banking

convention (the "ABI Convention")

with the Italian SMEs

providing, among other things, the possibility to request (i) a

period of up to 12 months; or (ii) the extension of the duration

request of additional security interests or guarantees by the

more than 90 days from the date of the request;

• SMEs must have not benefited from the suspension or

extension of the duration in the 24 month period prior to the

request, except for the easing of terms generally applying

by operation of law;

• if the loan is secured, the extension of the loan is conditional

applicable to medium and long-term loans, leasing financings,

is extended for a period equal to the holiday granted while

interest is paid on the payment dates originally agreed. The

rate of interest can be increased to cover any additional

financing costs borne by the bank, up to maximum 60 bps.

The extension of the duration is applicable to loans (mutui),

short term financings and agricultural credit agreements

pursuant to article 43 of the Italian Banking Act. Under this

option the loan can be extended for a maximum period equal

to 100% of the residual term of the amortization plan. For short

120 days, respectively. In this case too, the rate of interest can

pursuant to the new rate of interest must be substantially lower

submitted to banks which acceded to the ABI Convention up

date of a request.

For sake of clarity, we note that the moratoria provisions under

the Covid Decree and ABI Convention, although addressing

similar needs in the context of the crisis caused by the outbreak

of the Coronavirus, remain two distinct set of measures

available to Italian SMEs.

undergoing within Italian institutions on the possible

prorogation of the national lockdown; opposition parties and

certain professional associations have commented that the

Covid Decree is not sufficient to address the distress calls

coming from the Italian production and professional sectors.

There are also suggestions that the scope of payment holidays

applied to Italian borrowers might possibly be widened in the

future, if the crisis persists.

As a result, there has been increased concern on the negative

Italian securitisations and covered bond programmes.

measures approved with respect to mortgage loans are grafted

kind of provisions. Additionally, related mitigants already exist

enhancements by way of cash reserves, as well as liquidity

facilities that can be activated in order to meet Issuers' payment

obligations under the notes in the event of shortfalls caused by

reduced or limited collections during a certain period of time.

The existing mitigants and possibly the composition of the

collateral portfolios should in principle be able to address such

reduced collections, subject of course to the actual structure of

the transaction and a case by case analisys.

Italian SME loans. Although the measures under the Covid

This also means, that servicers have been granted through

time more flexible powers in order to deal with these kind of

suspensions, extensions and, in general, with the

renegotiations of the securitised portfolios.

The moratoria are subject to eligibility criteria and to a request

by the eligible borrower. As a consequence, the extension of

the impacts on the existing portfolios might be lower than

expected. Finally, the costs of the suspensions are partially

for such purpose, like the solidarity Fund for individual

economic impact on the issuers should be less invasive. Italy

Residential Mortgage Securitisation Markets, please see:

mortgage-securitisation-markets.pdf