New measures of the “Restore Liquidity” Decree on new loans, state guarantees and corporate crisis

Through the so-called “Liquidity” law-decree (no. 23 of 8 April 2020), the Italian Government has taken a series of measures which, together with the previously issued law-decree no. 18 of 17 March 2020 (converted into law 27/2020), constitute the current legal framework of Italy for the Covid-19 emergency.

The measures above can be summarised as follows.

1. Moratorium

Professionals and SMEs are entitled to request to the relevant banks/lenders:

• the suspension of payments of loans instalments (also applicable for interest) until 30 September 2020,
• the extension up to such date of the loans with bullet reimbursement and
• not to terminate up to that date any credit facilities and loans granted against receivable advances (provided that their indebtedness does not qualify as impaired exposure).

Lenders are entitled to get partial coverage of these measures through a 33% guarantee granted by the central guarantee fund (the “Fund”);

2. Loans guaranteed by the Fund

The Fund is authorised to provide a guarantee to new loans granted by banks and other authorised lenders, for a duration of 72 months, for a maximum guaranteed amount per company (or group of companies) of € 5 million. For direct guarantee interventions, the coverage percentage can be up to 90% of the amount of each financing transaction. For reinsurance coverage, i.e. when the loan is already guaranteed by a specialised entity like “confidi” (the Italian consortiums providing guarantees to help companies in obtaining loans) the percentage can be up to 100 percent, subject to certain conditions.

Only the following entities are eligible to benefit of such measure: SMEs, midcap companies employing less than 499 employees, and professionals.

The financing transactions which are eligible for the guarantee of the Fund cannot exceed the higher of:

1. the double of the annual personnel costs of the beneficiary in 2019;
2. 25% of 2019 turnover of the beneficiary;
3. the amount needed for working capital and investment costs in the following 18 months, in case of SMEs, and 12 months, for midcap companies with up to 499 employees.

Loans for refinancing transactions of the beneficiary’s debt are eligible for the guarantee of the Fund only if the new loan provides for additional funds for at least 10% of the residual debt.

The admission to the guarantee of the Fund is also envisaged, with a 100 percent coverage both in direct guarantee and in reinsurance, for new loans not exceeding Euros 25,000 in favor of SMEs and professionals who self-declare to have suffered a damage due to the COVID-19 emergency. When granting the loans, the lenders may rely on a self-declaration of the applicant together with evidence of the turnover requirement.

Also applicants whose exposures are classified as “unlikely to pay” or “past due or overdrafts” are eligible for the Fund guarantee, provided that the aforementioned classification does not date earlier than 31 January 2020. Under certain conditions also companies that, after such date, were admitted to the “concordato” procedure (composition with creditors) with continuity of business, entered into debt restructuring agreements or proposed a certified recovery plan are eligible for the guarantee.

In any case, companies whose exposures are classified as “NPLs” are excluded.

3. Loans guaranteed by SACE

Furthermore, a State guarantee, to be issued through SACE, has been introduced in favour of banks for new loans in any form granted to all types of companies/professionals until 31 December 2020, for a total budget of Euros 200 billion, of which at least Euros 30 billion reserved to SMEs and professionals (provided that they have no longer access to the mentioned Fund).

However, admission to the new guaranteed loans is subject to certain conditions, since the applicant company, as of 31 December 2019, should have not qualified as “undertaking in difficulty” (UID), and should not have liabilities classified as “NPLs”, as of 29 February 2020.

In addition, the applicant must undertake not to approve the distribution of dividends or the repurchase of shares in 2020 (also for companies belonging to the same group), and to manage employment levels through union agreements.

The guarantee can cover only loans granted by 31 December 2020 and with a duration of no more than 6 years, for an amount not exceeding the higher of (i) 25 percent of the 2019 turnover and (ii) double of the company’s personnel costs relating to 2019. In addition, the guarantee shall only cover loans intended to support personnel costs, investments or working capital used in production plants and business activities located in Italy.

The guarantee, which is on first demand, is granted in the maximum percentage ranging from 70 to 90 percent depending on the size of the company, with a simplified process that does not require preliminary ministerial decrees and investigation activities by SACE, in case of companies with less than 5,000 employees in Italy and a turnover less than Euros 1,5 billion.

The cost of SACE guarantee are as follows:

SMEs: 0,25% first year, 0,5% second year, 1% following years;

Any other entity: 0,50% first year, 1% second year, 2% following years.

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The “Liquidity” Decree also introduces further corporate measures aimed, in particular, at the business continuity, providing, inter alia, that the rules on compulsory liquidation as a consequence of losses liquidation eroding the share capital will not be effective until 31 December 2020, in order to avoid that losses caused by the epidemiological crisis may lead to the liquidation of still performing companies. Moreover, in drawing up the financial statements, companies will be allowed to perform an assessment of the items taking into account the pre-crisis Covid-19 situation. Finally, until 31 December 2020, the law provisions on the subordination of shareholders’ loans are not applicable in order to encourage shareholders to support their subsidiaries.

Lastly, it is worth adding that all petitions for insolvency filed against companies up to 30 June 2020 will not be processed (even those proposed by the company itself), with the sole exception of those filed by the public prosecutor. The entry into force of the new Code of Corporate Crisis, set to take place on August 2020, has been deferred to 1 September 2021.

With further reference to insolvency measures, the deadlines for the execution of “concordati preventivi” (compositions with creditors) and approved debt restructuring agreements, expiring between 23 February and 31 December 2020, are extended by six months (thereby causing a rescheduling of the related payment obligations).

In case of filing of a blank concordato, or during the negotiations to finalise a debt restructuring agreement, it will be possible to request an additional term up to 90 days of the automatic stay of enforcement and ad interim actions.