In Short

The Situation: The coronavirus (COVID-19) pandemic is having an impact on businesses across various sectors in Italy.

The Action: The Italian government recently enacted the Law Decree No. 18 of March 17, 2020 ("Decree") implementing a number of financing transaction-related measures designed to mitigate the adverse economic impact of COVID-19.

Looking Ahead: Market participants must consider the provisions of the Decree to assess the impact on either existing or new financing transactions.


The "Cura Italia" Decree introduces a number of urgent measures relating to certain financing transactions to mitigate the adverse economic impact of COVID-19 on individuals, companies, and financial institutions. The measures include the following:

Suspension of Payments Due Under Residential Loans

Payments due under residential loans of a primary dwelling property (mutui per l'acquisto della prima casa) may be suspended. In particular, the Decree expanded the scope of application of the "Gasparrini Fund" in favor of self-employed individuals and professionals who have suffered a significant reduction of their business activity due to orders taken by authorities in connection with COVID-19.

The suspension is regulated by the provisions governing the Gasparrini Fund and may be requested:

  • Only for loans in respect of which no enforcement procedures have been commenced;
  • For no more than two times; and
  • For a period not exceeding 18 months.

Suspension of Payments Due Under SMEs Loans and Leasing

Micro, small, and medium-sized enterprises ("SMEs") may ask for a suspension of payments due under any kind of financing (i.e., secured and unsecured loans, financial lease, etc.) granted by banks, financial intermediaries, and other entities authorized to carry out lending activity in Italy.

The suspension shall apply only to enterprises:

  • Qualifying as "micro, small, and medium-sized enterprises";
  • Having their registered office in Italy;
  • Not having nonperforming exposures; and
  • Certifying that they have suffered a temporary lack of liquidity as a direct consequence of COVID-19.

In addition, the suspension will operate as follows:

  • For existing credit facilities as of February 29, 2020, the amounts set forth in the relevant credit facility (including the portion not yet drawn down by the borrower) cannot be revoked until September 30, 2020;
  • For loans providing for a bullet repayment scheduled at any time before September 30, 2020, such repayment obligations are extended until September 30, 2020, on the same conditions as the relevant facility; and
  • For amortizing loans and leasing, payments due (in respect of interest and principal or principal only) prior to September 30, 2020, are suspended until September 30, 2020, and the repayment plan is updated and deferred to avoid further costs and burdens.

State's Guarantee for Loans Suspension

The Decree expands the scope of application of the guarantee fund for SMEs ("SMEs Fund") and provides that, upon request of the lender, financing transactions that are subject to any of the above suspensory measures are eligible for assistance under the SMEs Fund.

The guarantee is granted without charge and will cover an amount equal to 33% of the amount of the suspended payments and can be enforced only if, after 18 months following September 30, 2020, the debtor is in default on the payment of any amount being suspended.

Conversion into Tax Claims of Certain Deferred Tax Assets

The Decree provides that if prior to December 31, 2020, any company transfers to nonrelated parties receivables owed by debtors in default of their payment obligations by more than 90 days, a company can elect to convert its deferred tax assets ("DTA") into tax credits, subject to satisfaction of the following conditions:

  • The DTAs must relate to available tax losses and excess of the so-called "notional interest deduction" yet to be utilized at the time of the transfer of the receivables. There are two limits that apply to the conversion of DTAs. First, the amount of DTAs to be converted into tax credits cannot exceed 20% of the face value of the relevant receivables sold to a third party, and secondly, the overall amount of the receivables transferred by the company (in respect of which the company may claim for the tax credit) cannot exceed €2 billion.
  • The seller is not subject to financial distress or is not insolvent.

Expansion of the Central SMEs Fund

The scope of the central guarantee fund for SMEs has been expanded for a period of nine months in order to provide, among other things, that:

  • The guarantee is granted on a gratuitous basis;
  • The percentage covered by the guarantee is increased;
  • The guarantee can extend, subject to certain conditions, any outstanding financial indebtedness that is renegotiated and/or new short-term financing, in each case where the borrower suffered a reduction of its business in connection with the COVID-19 pandemic; and
  • Where the underlying financing has been suspended as a consequence of the COVID-19 crisis, the guarantee will be extended until the new scheduled maturity date of the loan.

Entry Into Force of the Decree

The final text of the Decree was enacted and published on March 17, 2020, and is subject to amendments by the Italian Parliament during its conversion into law, provided that if any provision does not become law within 60 days from the Decree's publication, then it will be deemed to have had no force or effect at all.


Three Key Takeaways

  1. Suspension of payment concerning loans is designed to enable companies to avoid loan defaults, but nevertheless we expect a significant number of loan waivers and re-negotiations.
  2. The provision on DTA may result in a reduction of asking price from originators (banks or corporates) when selling nonperforming loans, unlikely-to-pay loan portfolios, or claims.
  3. The extension of benefits provided by the Central SMEs Fund will support and facilitate funding to Italian small and medium-sized corporates, limiting the increase of NPL stock in the banking system.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.