Italian SMEs Bill Expands Structuring Options for Inventory Financing Securitizations

Pre-Reform Legal Framework

Before the SMEs Bill, inventory financing securitizations were already possible under Italian law, typically structured either through: (i) a nonpossessory pledge (pegno non possessorio) over inventory securing a direct loan granted by an Italian securitization vehicle (a "130 SPV") pursuant to Article 1, paragraph 1-ter of the Law 130; or (ii) a segregated estate (patrimonio destinato) established under the Milleproroghe Decree as collateral for a limited recourse loan granted under Article 7, paragraph 1, letter (a) of the Law 130 ("Article 7(1)(a)").

However, these structures were limited in scope and available only to Italian originators, preventing cross-border transactions.

The SMEs Bill introduces targeted amendments to the Law 130, enhancing the flexibility and international applicability of inventory financing securitizations.

Key Legislative Changes

Securitizations with Limited Recourse Loans (Article 7 of the Law 130). Article 7(1)(a) already allows 130 SPVs to grant limited recourse loans backed only by the cash flows or proceeds of the underlying assets (the "Limited Recourse Loans"). Such structures are substantially equivalent to an outright assignment of receivables, since the repayment of the Limited Recourse Loan depends exclusively on the performance of the underlying financed receivables.

In this context, the SMEs Bill introduces three key enhancements:

• Future receivables (Article 7(1)(a)): Although already implied in Article 7(1)(a) and the other provisions of the Law 130, it is now explicitly clarified that Limited Recourse Loans can also be granted against "future receivables" arising from the sale of physical completed products already produced by the originator and ready for sale to its clients (the "Completed Products");
• Segregation of Raw Materials (Article 7, paragraph 2-octies of the Law 130): The reform introduces the possibility, in securitizations with Limited Recourse Loans, to segregate not only Completed Products but also raw materials still in production that will become Completed Products by the end of the production process (the "Raw Materials"). This is significant because it allows originators to segregate these Raw Materials for the benefit of the 130 SPV (and ultimately the securitization's investors) without waiting for them to become Completed Products, thereby accelerating access to financing; and
• Segregation through transfer to an AssetCo (Article 7, paragraph 2-octies of the Law 130): The reform introduces an additional method for segregating Raw Materials and/or Completed Products for the benefit of the 130 SPV (and ultimately the securitization's investors) through transfer to a dedicated company (the "AssetCo"). While segregation was already possible via a nonpossessory pledge or a segregated estate, the new option allows the Raw Materials/Completed Products, along with the underlying receivables, to be transferred to the AssetCo, which is subject to the same legal, segregation, and tax framework as ReoCos and LeaseCos in distressed/NPLs securitizations, offering a segregation and tax regime that is investor-friendly.

Securitizations of material assets (Article 7.2 of the Law 130). The SMEs Bill has expanded the scope of Article 7.2 of the Law 130, which previously allowed true-sale securitizations only of real-estate assets or registered movable assets (e.g., vehicles, ships). The amendments now permit securitizations of any movable material assets, even if not registered, enabling the use of Article 7.2 structures in inventory financing transactions as well.

Entry into Force of the SMEs Bill

The SMEs Bill has already been approved by the Italian Senate. For it to enter into force, it must be published in the Official Gazette, after which the applicable vacatio legis period will need to elapse before the amendments become effective.