A 2018 discussion paper on the Italian Credit Market. A couple of opportunities of potential high-ROE businesses by exploiting challenger banks or shadow banking players focused on tail risk credit (pre-UTPs and default procedures) are presented.
Business Principles, Tools, and Techniques in Participating in Various Types...
Untapped opportunities in the Italian credit market: "Pre-UTPs and insolvency proceedings financing"
1. 1
Discussion paper
Milan, 14th June 2018
Untapped opportunities in
the Italian credit market:
«Pre-UTPs and insolvency
proceedings financing»
DRAFT FOR DICUSSION
3. 3
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
Executive Summary
• During the last year the market saw a significant contraction of NPLs that reached 264 Bn Euro as gross outstanding loans
(13,5% of the overall gross loans). Bad Loans are the 62%, UTPs 36%, Past due 2% (Page 7 PDF). More than 70% of Bad Loans and
UTPs is generated by the Corporate Segment*. Past due are almost equally divided between Corporates, Small Businesses and
Consumers (Page 8 PDF). The new flow of NPLs reached pre-crisis level (decay rate below 2%) thanks to a recovery of the
economy; June 2018 expected coverage rate should reach 49% (page 9 PDF).
• The sense of urgency on the derisking, imposed by the Regulators, has resulted in a more risk management oriented and
opportunistic attitude by Banks. Sales are predominant in NPLs workout, even though the recovery rate is lower vs internal
workout (23% vs 44%) (page 10 PDF).
• Commercial Bankers believe the provisions reduction will be the major source of net banking income (NBI). Cost Income is
recovering, but mainly to cost reduction; revenues still laggard (cfr page 11 PDF). New Regulations will determine even greater
pressure on profitability and on return on capital with ROE possibly below cost of capital. Even though phased in and with the
benefit of the first adoption clause, IFRS 9 should negatively impact on provisions of about +15-30% and on CET1 -40/75 bps.
The BCE addendum will have a great impact on new NPLs provisions, thus resulting in a need of strengthening prevention
procedures (page 12 PDF).
• NPLs market is a great opportunity, but the market is quite crowded: many players, many portfolio transactions both for bad
loans and for UTPs. More than 60 transactions closed with 46 Bn Euro acquired (not including large MPS securitization). The
Most important transaction for 17.7 Bn with Unicredit/Fortress PIMCO. 8 Players with volumes between 1-3 Bn acquired (Ifis,
CRC, Hoist, Credito Fondiario, MB Credit Solutions, Kruk, Bain capital, Cerberus), other 10 Player with transactions between 1 –
0,3 Bn. Banca IFIS is the player with the greatest number of transactions (>10) and it is active also as a reseller. Already more than
30 transactions expected or executed in 2018 with volumes for more than 70 Bn (including MPS) (page 13 PDF). The Servicing
market generates about 400 Mn revenues and it is quite concentrated. The first ten players have 76% of the market managing
ca 70% of the assets (page 14 PDF).
• The Italy economy will keep growing, thanks to the export and consumption, notwithstanding a banking system more
selective and risk averse oriented. The GDP is expected slightly lower than 2017 but certainly above 1%. The credit market to
consumer is growing confirming a trend of leveraging household balance sheet. Conversely loans to enterprises are still
diminishing (-6/7%). The banking system is becoming more plain vanilla and risk averse oriented. The market dynamics have
brought the following equation ”Low and selective growth + risk averse oriented approach of banks → credit polarization” which
means that credit is provided in excess to very good counterparties and tail risk approach is completely avoided (page 15 PDF).
* More than 5 employees
4. 4
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
Executive Summary (2/3)
▪Banks approach has become not appropriate to serve the backbone of the Italian economy: SMEs and Small Businesses (SB). In
Italy there are 769.000 SMEs and SBs are active in Italy with 5 Mn employees; 86% small businesses (turnover <2 Mn Eur); 25K Mid
Companies with turnover between 10 and 50 Mn Eur and >50 Employees; 114K Small Enterprises. 76% of companies in Italy are
SMEs and SBs with 40% of the market revenues. SMEs and SBs are growth oriented, in fact they generate a +5,7% revenues growth
vs a -1,15% of Mid Cap and Large Corporate. 23% of revenues is absorbed by financial debt (13% for Mid and Large Corp.), they do
very small investment in R&D (0,17% of revenues). Traditional Banks are reducing loans to SMEs and SBs (-7%) while Factoring and
Leasing players increased their support of about +2,3%. Alternative funding is tremendously soared (+27%) (page 16 PDF).
▪SMEs are improving their profitability and financial soundness. The leverage has been reduced from 100% in 2011 to 76% in 2016;
investments have increased (+7,8% 2016 vs 6,7% 2011, 5,4% 2013) but with room of improvement vs pre crisis level (2007 +9,7%).
There are 52K SMEs with a net debt less than 2x EBITDA with therefore a potential increase of debt for 100 Bn Eur. Average ROE
overcame 10% in 2016 (page 17 PDF)
▪Default and insolvency proceedings are diminishing constantly reaching almost pre-crisis level, but they are still relevant (page 19
PDF). New Agreement with creditors reached roughly 100-150 per quarter with a double number of proposals (pag 19 PDF).
▪ Pre UTPs financing could be a great untapped opportunity. If we look at the PLs, 10-20% out of them could be below S&P B
equivalent rating (1yrPD > 6%) and object of an exit strategy. As of 2017 figures, Including Past Due we have 120-180 Bn Eur high risk
credit that we call pre-UTPs (29 Bn already forborne). These credits could coincide with IFRS stage 2 class. It is worthwhile to note
that Banks are trying to deleverage from such segment, but not all positions deserve an exit. Unfortunately, banks are not eager to
follow innovative financing approach to refinance traditional credit lines. The risk of default in case of tight reimbursement of credit
lines is behind the corner. Currently this arena could is an hunting territory for direct lending players with an industrial mindset
(page 21 PDF). In case pre-UTP refinancing structured initiatives in the business segment we have estimated 1-3 Bn Eur credit
potential value readjustments for banks with important impact on P/Ls and CET1. These transaction could be done by TUB
regulated players (106, challenger banks) or shadow banking players through 1) Single deal new originations and refinancing 2)
Portfolio acquisition or securitization 3) Mini Bond Issuance and refinancing. Banks could co-sponsor the initiative in case of
securitization or sale to an investment vehicle transforming credit assets into financial assets with minority shareholdings of junior
notes (page 22-23 PDF).
▪Shadow Banking is a reality in Italy and new flexible form of financing are emerging. Bank of Italy estimated that in 2015 650 Bn
Euro assets are in the hands of shadow banking according to FSB definition (page 24-25 PDF). The credit fund market has just been
regulated and is emerging with more than 20 funds authorized without including Mini Bonds funds.
5. 5
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
Executive Summary (3/3)
▪Credit Funds introduced in 2014 with an amendment of TUF by allowing collecting investment organism to grant loans out of the
funds collected (origination funds) or in addition to loans granted by third parties (participation funds). The full Regulatory
framework has been completed only recently with the amendments of TUB to avoid misalignments. These funds could be
available both for Retail and Professional Investors. Bank of Italy issued provisions setting out the prudential regulation of
credit funds, in order to introduce a set of provisions so as to reduce the risk of shadow banking (page 26 PDF). Today little more
than 20 funds are active in Italy with different focus in the direct lending arena (page 27-28 PDF)
▪Another untapped opportunity is financing the insolvency proceedings (page 30 PDF for the different type of procedures).
Looking at SMEs under procedure, it has been estimated that today more than 15% of companies survive after the agreement
with creditors. Banks don’t back such players since they are considered defaulted (PD=1) and the cost of risk is too high (page 31
PDF). Only 5% of the companies increased their revenues after the closure of the procedure (page 32 PDF) and the procedure
timing are still long, thus reducing the probability of recovering (page 33 PDF). Leveraging the sale of account receivables without
recourse and the sales of the tax receivable, the receiver can reduce the duration of the procedure and maximize the interest of
creditors. Different type of players can operate in this arena: 106, Challenger Banks, 115 TULPS (i.e. workout agency) shadow
banking players. Very few players are working in such field (page 34 PDF). Profitability is really interesting since the purchase
discount as commissions ranges from 8 to 15% + Interests rates in case of advance payments granted. The risk is very low since
these credit are pre-deductible from avoidance procedures and in some cases could be covered by commercial lines insurance
(page 34 PDF).
7. 7
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
Despite a significant contraction, still huge amount of NPLs with relevant
forborne positions even in the performing segment..
1.675 1.671 1.688
300
277 264
2Q17 3Q17 4Q17
Bn Euro; Source Bank of Italy
1.975
(4,7%)
1.952
(4,9%)
1.949
(4,8%)
Outstanding Gross Loans* (OGLs)
(o/w Forborne)
NPLs
PLs
13,5%14,2%15,2% NPLs/
OGLs
(24%)
(23%) (22%)
(1,8%) (1,8%) (1,7%)
62%
36%
2%
Source Bank of Italy
NPLs distribution (o/w Forborne)
Bad Loans
UTPs
Past Due
(36%)
(9%)
(16%)
* Gross of provisioning, net of write off
28 Bn forborne perfoming
positions
8. 8
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
… with the most relevant contribution from the corporate segment
Bn Euro; Source Bank of Italy
Distribution of NPLs by type of client 4Q17
* Less than 5 employees
70
76
36
8
5
12
12 9
30
10% 10%
22%
Bad Loans UTPs Past Due
Corporate
Small Business*
Consumer
Other
100%= 164 Bn 92 5
9. 9
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
The new flow of NPLs reached pre-crisis level thanks to the recovery of the
economy
Percentage; Source Bank of Italy
Decay rate (New NPLs/PLs)
Consumer Corporate Total
Percentage; Index (100= GDP 2007); Source Bank of Italy
Net Bad Loans/PLs - GDP
Net Bad loans/PLs
GDP (right scale)
June 17
▪Expected June 2018 Delinquency Rate*
o Net NPLs 7,8%
o Gross NPLs 14,3%
▪ Coverage rate 49%
* Including MPS transaction
10. 10
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
«Bankers have become more risk managers» – sales are predominant in NPLs
workout even though the recovery rate is lower
Percentage; Source Bank of Italy
NPLs evolution
Source Bank of Italy
Bad Loans Workout 2016 – recovery rate
YE16 In
flows
Out
flows
Collection Sale Writeoff Other YE17
44%
23%
34%
Internal Workout
Sales
Total
▪The sense of urgency imposed by Regulators on the
derisking has resulted in a more risk management
oriented and opportunistic attitude by Banks
11. 11
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
Derisking is perceived as the major source of profit in a context with great
pressure on Net Banking Income
+3 Most important; Source BCE short term exercise
Major expected banks performance drivers
Index (100= Dec08); Source Bank of Italy
C/I evolution
Provisions reduction
Operating costs reduction
Commissions increase
Interests rate increase
Pressure on margins/
competition increase
Operating costs (rh scale)
Cost income (rh scale)
Net banking Income (lh scale)
Dec08 Dec15 Dec16 Jun17
12. 12
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
New Regulations will determine even greater pressure on profitability and on
return on capital with ROE possibly below cost of capital
Some major new regulations
IFRS9
BCE NPLs
guidance and
addendum
Basel 4
▪Adoption of lifetime PD (bucket 2/3) →
increase of provisioning for high risk
performing loans
▪Provisioning growth of about 15-30%;
40-75 bps impact on CET1
▪First time adoption facility 1st year
(impact on P/L neutralized); non linear
dilution capital impact over 5 year
▪Specific structured governance and
processes for NPLs
▪Unsecured provisioning 100% within
2yrs
▪Secured provisioning 100% within 7yrs
▪From 2022
▪Output floor @72,5% for AIRB; phased
in five years (50% 2022)
▪Simplification of operating risk
calculation
More provisioning + More Capital = Less Return on Capital
Percentage; Source Bank of Italy
2019 Expected ROE – Significant Institution
▪Scenario 0: business plan targets achieved – 9%
ROE at most
▪Scenario 1: 50% achievement – 7% ROE
▪Scenario 2: C/I stable; Cost of risk >
expectations; ROE 3%
Probably Below cost of
capital in every
scenario
13. 13
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
NPLs market great opportunity with many players, many portfolio transactions
both for bad loans and for UTPs …
Source BeBeez
2017 NPLs transactions
…… …
▪More than 60 transactions closed
▪46 Bn Eur acquired (not including MPS)
▪Most important transaction for 17.7 Bn
Unicredit/Fortress PIMCO
▪ 8 Players with volumes between 1-3 Bn
(Ifis, CRC, Hoist, Credito Fondiario, MB
Credit Solutions, Kruk, Bain capital,
Cerberus)
▪Other 10 Player with transactions
between 1 – 0,3 Bn
▪Banca IFIS with the greatest number of
transactions (>10) and active also as
seller
▪ Already more than 30 transactions
expected or executed in 2018 with
volumes expected for more than 70 Bn
(including MPS)
14. 14
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
Servicer market quite concentrated; many players around the table
Source PWC
First 10 Servicer player
76
68
24%
32%
Revenues Bad Loans*
100%= ~400 Mn Eur ~190 Bn Eur
Source PWC
2017 Servicing Market Concentration
* Including third party portfolio
First 10
players
15. 15
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
The Italy economy will keep growing, thanks to the export and consumption,
with a banking system more selective and risk oriented …
Source Bank of Italy
GDP forecast
Import
Consumption
Stocks surplus
Export
Gross Fixed Investments
GDP
▪ In 2017 credit to consumer has increased for
more than 2%
▪ Conversely credit to companies has
decreased for ca -6%
▪Important decrease in interest rate applied to
the stock (-6%)
▪More focus and risk oriented approach in
creditworthiness evaluation according to
regulatory evolution
2017 Credit Market dynamics
Low and selective growth + risk oriented approach of banks → credit
polarization
Source Bank of Italy
16. 16
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
… that could not be well equipped to serve the backbone of the Italian
economy: SMEs and Small Businesses (SB);…
▪ Companies with turnover < 50 Mn EUR and < 250 employees; SMEs >10 employees 2 Mn Eur revenues
and assets > than 2 Mn Eur
▪ 769.000 active in Italy with 5 Mn employees; 86% small businesses (turnover <2 Mn Eur); 25K Mid
Companies with turnover between 10 and 50 Mn Eur and >50 Employees; 114K Small Enterprises
▪ 76% of companies in Italy are SMEs and SBs with 40% of the market turnover
▪ SMEs and SBs are growth oriented (+5,7% revenues growth while -1,15 Mid Cap and Large Corporate)
▪ 23% of revenues is absorbed by financial debt (13% for Mid and Large Corp.), very small investment in R&D
(0,17% of revenues)
Risk (Default Ratio)
YearlyRevenuesGrowth
HighLow
HighLow
Nord ovest
Nord Est
Centre
Islands
South
Net Equity/
Total
Assets
Banking Loans
Leasing
Factoring
Bonds
PIR
▪Traditional Banking
loans decreased of
about 7%
▪Factoring and leasing
+2,3%
▪Alternative funding
+27%
Bn Eur; Source Banca IFIS Market watch
SMEs and SBs financing
Bn Eur; Source Banca IFIS Market watch
SMEs and SBs distribution by risk/growth
17. 17
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
SMEs are improving their profitability and financial soundness
Revenues Value added Gross Operating
Margin
ROE
Source CERVED PMI Report 2017
YoY Change
▪Leverage reduced from 100% in 2011 to 76% in 2016
▪Suppliers payment delay from more than 80 to 70 days
▪Increase of investments (+7,8% 2016 vs 6,7% 2011, 5,4% 2013) but with room of
improvement vs pre crisis level (2007 +9,7%)
▪52K SMEs with net debt < 2x EBITDA → potential increase of debt for 100 Bn Eur
18. 18
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
Default and insolvency procedures are diminishing constantly reaching almost
pre-crisis level, but still relevant …
Default Agreement with
creditors
Compulsory
Liquidation
Voluntary
liquidation
Source CERVED Monitor on “Fallimenti, chiusure e procedure 2018”
YoY Change
Q1 17
Q1 18
2.945 112 182* 16K# Applications
* Mainly due to cooperatives
19. 19
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
… roughly 100-150 agreemenent with creditors procedures activated per
quarter and a double amount of proposals
Source CERVED Monitor on “Fallimenti, chiusure e procedure 2018”
# of new procedures by quarter
Introduced the possibility
for the Judge to nominee a
Receiver
Agreement with creditors Proposal of agreementAgreement with creditors
21. 21
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
Pre UTPs loans are a significant share of the Italian Banks Loans book
10-15%
85%
100%= 1.194 Bn PLs (Business and Consumer)
+
PAST DUE NPLS= 5 Bn
Below B S&P
equivalent Rating
(PD > 6%*)
Above B S&P
equivalent Rating
(PD < 6%*)
*12month PD
▪Banks are trying to deleverage from
such segment
▪Not all positions deserve an exit, but
banks are not eager to follow innovative
financing approach
▪Risk of default in case of tight
reimbursement of credit lines
▪Currently hunting space for direct
lending players with an industrial
mindset
120-180 Bn Euro High Risk Credit
so called Pre-UPTs
22. 22
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
With Pre-UTPs business loans refinincing ca 1-3 Bn Euro of credit value
readjustments and positive effect on capital requirements for banks…
*12month PD (lh); ECL IFRS9 (rh) estimate
Distribution of Business
Pre UTPs
79
18
B/B- Like
Past Due
100%= 70-100 Bn Euro
CCC Like
3%
Expected Loss*
20-26%
8-10%
3-4%
X
X
X
Manageable
Credit
X 10-20%
▪Interesting Credit
from an industrial
perspective
(forward looking
vs backward
looking of
traditional credit
rating)
▪ Sharing of credit
value
readjustment
with the bank
(30-50%)
▪Positive impact on CET1 and
AIRB models parameters
▪ Prevention of the BCE
Addendum negative effect
avoiding migration toward Bad
Loans
▪ Risk deconsolidation and
active portfolio managers
1-3 Bn Eur potential
credit value
readjustment thanks to
Pre-UTP refinancing
23. 23
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
… leveraging specialized banking or shadow banking players
Possible players
106 or Challenger
Banks
Shadow Banking
players
▪Players specialized on tail-risk
credit with in-depth knowledge of
sector and industry dynamics
▪Typically standard model based
▪Focus on trade finance (covered by
insurance) and on secured loans
▪ Investment firms
▪ Asset Managers
▪ Alternative Asset Manager
▪ Insurance/pension funds
How
Single deal new
origination and
refinancing
Portfolio
Acquisition or
Securitization
▪Banks could co-sponsor the
initiatives for instance in case
of securitization or sale to an
investment vehicle
transforming credit assets into
financial assets with minority
shareholdings
MiniBond
issuance and
refinancing
24. 24
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
Italian shadow Banking is growing and the end of 2015 accounts for more than
650 Bn Euro …
Evolution of bank and non-bank assets
100= 2005; Source Bank of Italy
Non-bank assets breakdown
2015; Source Bank of Italy
25. 25
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
… mainly through special purpose vehicle, investment funds and finance
companies...
Shadow banking assets breakdown
2015; Source Bank of Italy
26. 26
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
… alternative credit funds have been regulated only recently
• Credit Funds introduced in 2014 with an amendment of TUF by allowing collecting investment organism to grant loans
out of the funds collected or (origination funds) in addition to loans granted by third parties (participation funds)
• The full Regulatory framework has been completed only recently with the amendments of TUB to avoid misalignments
• These funds could be available both for Retail and Professional Investors
• Bank of Italy issued provisions setting out the prudential regulation of credit funds, in order to introduce a set of
provisions so as to reduce the risk of shadow banking
Bank of Italy provisions on credit funds
Closed-End
Structure
Leverage and
Maturity
requirements
▪ The regulation requires that credit funds
are established as ‘closed-end structures’:
investors’ redemption of units or shares is
not allowed before the end of a fund’s life
in order to prevent maturity and liquidity
transformation
▪ Credit funds marketed to retail customers
are subject to a leverage limit of 130%;
▪ Those marketed to professional investors
are subject to a leverage
▪ limit of 150%.
▪ Furthermore, credit funds can enter into
derivative contracts exclusively for hedging
purposes (limits on leverage).
▪ The maturity of the credit granted by a fund
cannot exceed the maturity of the fund
itself
Processes and
procedures
Concentration
limit
▪ As far as internal controls are concerned,
asset managers are required to define,
within the risk management system, a
specific process for credit risk
management, with particular regard to i)
risk measurement ii) risk diversification iii)
credit monitoring iv) classification of risk
positions and v) assessment and
management of impaired loans (risk
management)
▪ Both retail and professional credit funds
shall limit the exposure to a single client at
10 per cent of the total assets of the fund.
27. 27
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
A market just born: 14 Asset Manager Active with little more than 20 funds
authorized today in italy
• IGI - FONDO DI DEBITO SOSTENIBILE
• SUPPLY CHAIN FUND
• QUADRIVIO PRIVATE DEBT FUND
• FONDO PINTURICCHIO
• FONDO VISCONTI
• FONDO PERUGINO
• FONDO BOTTICELLI
• HI DISTRESSED OPPORTUNITIES FUND
• PEP V- FONDO DI DEBITO PER LO SVILUPPO INDUSTRIALE
• TRE (TRADE RECEIVABLES EQUITY)
• VER CAPITAL MEZZANINE PARTNERS
• VER CAPITAL CREDIT OPPORTUNITY FUND
• VER CAPITAL CREDIT PARTNERS ITALIA V
• IDEA CCR (CORPORATE CREDIT RECOVERY) I - CREDITI
• IDEA CCR (CORPORATE CREDIT RECOVERY) I - NUOVA FINANZA
• IDEA (CORPORATE CREDIT RECOVERY) II - COMPARTO CREDITI
• IDEA (CORPORATE CREDIT RECOVERY) II - NUOVA FINANZA
• DEA PRIVATE DEBT
• ZEPHIR CAPITAL CREDIT FUND I
• YOUNITED ITALY
• FONDO DI CREDITO DIVERSIFICATO PER LE IMPRESE
• COLOMBO
• FPD I
• INIZIATIVA GESTIONE INVESTIMENTI SGR SPA
• GROUPAMA ASSET MANAGEMENT SGR S.P.A.
• GREEN ARROW CAPITAL SGR S.P.A.
• SORGENTE SGR S.P.A.
• SORGENTE SGR S.P.A.
• SORGENTE SGR S.P.A.
• SORGENTE SGR S.P.A.
• HEDGE INVEST SGR S.P.A.
• PRIVATE EQUITY PARTNERS SGR S.P.A.
• P&G SGR SPA
• VER CAPITAL SGR S.P.A.
• VER CAPITAL SGR S.P.A.
• VER CAPITAL SGR S.P.A.
• DEA CAPITAL ALTERNATIVE FUNDS SGR S.P.A.
• DEA CAPITAL ALTERNATIVE FUNDS SGR S.P.A.
• DEA CAPITAL ALTERNATIVE FUNDS SGR S.P.A.
• DEA CAPITAL ALTERNATIVE FUNDS SGR S.P.A.
• DEA CAPITAL ALTERNATIVE FUNDS SGR S.P.A.
• ZEPHIR CAPITAL PARTNERS SGR S.P.A.
• EUROTITRISATION
• SPRINGROWTH.
• ART SGR SPA
• FENERA & PARTNERS SOCIETA' DI GESTIONE DEL RISPARMIO
S.P.A.
Authorized Credit Fund
2018; Source Bank of Italy
Asset Manager Name of Fund
More than other 25 funds
invest in not listed debt
securities (e.g. MiniBond)
28. 28
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
Case example of a credit fund authorized in Italy: Groupama SCF
▪ Born in October 2016, 76 Mn Euro of credit granted in less than one
year (June 2017)
▪ Based on Supply Chain Finance (SCF) mechanism (reverse factoring)
that leverages the creditworthiness of big buyer to finance suppliers
▪ First Credit Fund Authorized by Bank of Italy
▪Operations through a multichannel digital platform developed by Fifty
«beyond finance» for SCF solutions
▪ Co invested by 2 Italian Pensions Funds: Byblos (Paper industry),
Alifond (Industrial sectors)
Supply Chain Fund
30. 30
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
There are different types of insolvency proceedings in Italy
Fallimento
(default)
▪ Ruled by «Regio Decreto 16th March 1942 n. 267 (so called legge fallimentare)» modified by D.Lgs 9th Jan 2006 n.5
and by D.Lgs 12th September 2007 n.169 whose provisions are applicable from defaults declared since 16th July 2006
▪ Requirements to declare: structural insolvency status verified by the judge; exclude small entrepreneurs (Assets <300K;
Revenues <200K; Debts not matured <500K)
▪ Players involved: Entrepreneur, Default Judge; Creditors Committee, Receiver
▪ Receiver develops and executes the liquidation program approved by Creditors Committee and the Judge
▪ Assets liquidation can be done through sales of a single asset or multiple assets, sale of credits, sale or leasing of the
company/business units. The single transaction are managed through competitive bid procedures.
▪ Receiver can activate an avoidance action: Acts that can be the object of an avoidance action are transactions in a
situation of imminent insolvency (6.12 months to 24 months), the creation of security rights, transactions with connected
parties and transactions carried out with the intention of defrauding creditors.
▪ Default procedure can be even executed without the liquidation of assets, in case of an agreement proposed by the
entrepreneur and approved by the majority of creditors; the Judge certifies the proposal by issuing a court decree
Concordato
preventivo
(agreement with creditors)
▪ To avoid the default can be proposed an agreement with creditors approved by the local Court
▪ In case of approval by creditors the Judge will certify the plan with a court decree
▪ In this procedure the plan is executed under the control of an expert appointed by the Court
▪ The entrepreneur executes the plan without losing the control of the administration
▪ To set up the plan and block any requests by creditors often is followed a so called “concordato in bianco” that allows to
propose a plan in 60 days (the deadline can be extended by other 60 days)
Other procedures
▪ Liquidazione coatta amministrative (Compulsory Controlled Liquidation) – reserved to specific companies that cannot
fail, similar to default procedure but with more freedom to liquidate the assets
▪ Amministrazione controllata (receivership/in administration): similar to the previous one, is aimed at satisfying the
creditors while preserving the production and the workforce. A restructuring plan that last 2 years maximum is required.
More than 200 employees. Avoidance action only for the assets to be liquidated.
31. 31
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
Companies under insolvency procedures need finance to recover…
# SMEs alive after agreement with creditors
100= # Of SMEs with agreement with creditors 2010-2014;
Source CERVED PMI Report 2017
Revenues >0
Revenues =0
1st Year 2nd Year 3rd Year
▪Today more than 15% of
companies survive after the
agreement with creditors
▪Banks don’t back such players
since they are considered
defaulted (PD=1) and the cost
of risk is too high
▪ Very few players are working
in such field
32. 32
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
… with appropriate financing more companies could survive…
SMEs revenues growth after 3 years from the
agreement with creditors
Source CERVED PMI Report 2017
Increasedbetween -50%
and 0
between -75%
and -50%
33. 33
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
… timing of procedures needs to be further squeezed to increase the
probability of recovery
Default procedure duration – Best/Worst Courts
2016; Years; Source Sole 24Ore
• Average Time 7,1
Yrs close to 2003
6,8
• Thanks to new
rule (asset
liquidation within
24 Months)
closures = new
openings
• 50% of files in less
than 5 years; 25%
in less than 2
years
• Real estate
transaction time
increased to 5
years
Best Courts
Worst Courts
34. 34
LM Advisory
lodovico.mazzolin@outlook.com
Untapped opportunities in the Italian credit
market: «Pre-UTPs and insolvency
proceedings financing»
Quick liquidation of assets is desirable through the sale of A/R and T/R
Sales of Account
Reicevables(A/R)
wo recourse
▪ Quicker closure of procedures
▪ No legal cost with a great advantage for the
Creditors since such expenses are pre-
deductible
▪ Often receivers operate with lack of cash to
appoint legal and advisors for the recovery
▪ Purchased credit pre-deductible in case of
avoidance action by the receiver
▪ Immediate cash-in of account receivables
▪ What types of credit: Unsecured credit to
enterprises or individuals; Unsecured credit
derived from the avoidance action, Unsecured
credit through foreclosure with third party
(Employer, PA, INPS). Typically 1/5 of the
salary/pension at most. The procedure cannot
stay open for a long time to recover, therefore is
better to sell. Secured Credit, Unsecured credit
with PA.
Sales of Tax
Receivables (T/R)
▪ Slow recovery of tax receivable suggests
the selling to the receivers
▪ VAT, IRPEG/IRES Credit. VAT credit
accrued before or after the procedure
▪ The sale of credit results in tax benefit
equivalent to the loss of the sale entirely
deductible in the same year from the
taxable IRES (i.e. 24% of the loss as a tax
benefit)
How Who and profitability
▪ Banks, 106 TUB, 115 TULPS (Workout
Servicer)
▪ Shadow Banking players
▪ Few Specialized players
▪ Purchase discount as commissions from 5
to 15% + Interests rates in case of advance
payments granted
General
Finance