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CONTEXT AND TRENDS
The market in Italy is fairly reflective of the wider European situation. "To say the least, there hasn't been too much new money financing in the market....

CONTEXT AND TRENDS

The market in Italy is fairly reflective of the wider European situation. "To say the least, there hasn't been too much new money financing in the market. That's down to two things: macroeconomic conditions, and issues affecting the liquidity of banks and the costs of funding," observes one finance partner.

In addition having suffered from several rounds of downgrades there is less appetite for the debt instruments issued by domestic banks. "Local banks having difficulty raising funds in the interbank market made credit very scarce," notes one lawyer.

Ultimately, the uncertainty in the Eurozone has created a stalemate between lenders and borrowers. "In general banks are not pushing to lend new money and corporates are not asking for new money. A lot of corporates, to the extent they can, want to live on their existing financings because they are a lot cheaper facilities than they could get currently and they want to drag them out as long a possible," notes one partner.

After Prime Minister Mario Monti came into power in November 2011 the market improved slightly with the ECB injecting liquidity into the Italian banks. But the turmoil in Greece created further uncertainty and stunted the growth of the lending market.

The dearth in viable funding solutions has driven companies to look at debt as an alternative source of finance. "There was an increasing interest in bank and bond financings not only in the LBO sector but also as a way of refinancing," notes one lawyer. With the government amending the rules governing bond issuances in June 2012 to permit non-listed companies to issue, bond financing looks set to become even more prevalent.

CONTEXT AND TRENDS
The majority of the capital markets work seen in Italy has been related to bank recapitalisation. "A lot of the work was driven by the need to meet capital ratio requirements which were borne out in the liability management exercises undertaken by all the major Italian banks," says one partner....

CONTEXT AND TRENDS

The majority of the capital markets work seen in Italy has been related to bank recapitalisation. "A lot of the work was driven by the need to meet capital ratio requirements which were borne out in the liability management exercises undertaken by all the major Italian banks," says one partner.

Successful IPO's remain elusive with Italian companies faring better on foreign exchanges. But any dual listing activity is opportunistic and only feasible for strong brands such as Prada which successfully floated on Hong Kong in 2011. Secondary raisings have been limited to the banks activities with UniCredit's €7.5 billion capital increase a key example.

Similarly to the equity market, true securitisations are virtually nonexistent, but have become an important instrument for domestic banks. "Effectively, Italian banks put in place the relevant securitisation deals to use as collateral with the ECB (European Central Bank) or as asset backed securities for bilateral financing with the likes of Nomura or Goldman Sachs," notes one partner. Lawyers, who consider this "disguised banking transactions" given the targeted investor base, note there has been "some shy attempts" to resume the usual capital markets work but investor sentiment is not strong enough to stimulate the market.

With investors reluctant to gamble on Italian risk, the debt markets have been relatively flat aside from covered bond programmes, which satisfy even the most cautious investors, undertaken by the banks However, there was a six week window in the first quarter of 2012 which witnessed a bout of activity. "We did a lot of debt between the end of February to mid march, we probably did fine or six billon [Euros] in new money," says one partner. Along with several banks, big names like Fiat and Luttoxica were able to successfully issue.

With the lack of liquidity in the bank market, bond structures are increasingly being turned to as a viable alternative source of finance. "We have seen bonds or high yield or senior secured bonds being utilised for refinancing purposes and in LBOs," says one partner.

In the local market another development has been the introduction of alterations to the bond law in June 2012, which will allow local unlisted companies to issue these instruments. The move was driven by the need to secure funding for Italian SMEs (small and medium enterprise) - a vital part of the economy given the ratio in relation to the size of the population far exceeds the European average. The reform also cut the withholding tax on project bonds issued by companies to 12.5% in an attempt to stimulate the market.

The changes have been brought in to try to stimulate Italian industry and though they may not one the biggest mandates in the market they could be a useful source of work for firms if they prove popular.

MAJOR LATERAL HIRES

Ferigo Foscari
From: Chiomenti
To: White & Case

CONTEXT AND TRENDS
M&A activity in Italy remains very low. "Due to the financial crisis and uncertainties in the European situation, M&A has slowed down terribly, particularly where it regards foreign investors and private investors," notes one partner....

CONTEXT AND TRENDS

M&A activity in Italy remains very low. "Due to the financial crisis and uncertainties in the European situation, M&A has slowed down terribly, particularly where it regards foreign investors and private investors," notes one partner.

With a large amount of restructuring ongoing, there have been distressed deals with activity in the insurance and energy sectors. Reputedly, falling stock prices are seeing increasing interest from strategic investors but this is yet to translate into transactions. "We are seeing a lot of interest from opportunistic investors, but the sellers have not reached the critical point where there is no other option than to dispose of assets, explains one lawyer. Going forward, however, lawyers foresee certain industries will soon have no choice but to divest. "I think we will see activity in the banking sector. Certain banks need to deleverage so they will have to dispose of a part of their business," says one lawyer. Additionally, defaults in the real estate sector are expected to stimulate activity. "Banks are possessing certain real estate assets and will need to dispose of them on the market," says one lawyer.

Practitioners also report increased interest from Chinese investors, looking at acquiring strong Italian companies. "There is a surge by Chinese, Korean and Indian buyers who are interested in luxury companies or strong brands of made in Italy products. That is a clear trend we are seeing," says one lawyer.

MAJOR LATERAL HIRES

Fabio del Bene
From: Gianni Origoni Grippo Cappelli & Partners
To: DLA Piper

Alessandro Piermanni
From: Hogan Lovells
To: DLA Piper

From Gianni oringoni Roberto Cappelli
From: Grimaldi
To: Gianni Origoni Grippo Cappelli & Partners

Luca Picone
From: Linklaters
To: Hogan Lovells

Francesco Stella
From: Linklaters
To: Hogan Lovells

CONTEXT AND TRENDS
In the past few years Italian firms have been kept extremely active with renewable energy work thanks to the Government's appealing feed-in tariff. Unfortunately austere times call for austere measures and the lucrative contracts between the Government and renewable energy investors are now a thing of the past as the tariff has been slashed to try to regain some balance in the Government's budget....

CONTEXT AND TRENDS

In the past few years Italian firms have been kept extremely active with renewable energy work thanks to the Government's appealing feed-in tariff. Unfortunately austere times call for austere measures and the lucrative contracts between the Government and renewable energy investors are now a thing of the past as the tariff has been slashed to try to regain some balance in the Government's budget. "The major focus in project finance in Italy over the past two years has been in energy mostly renewable but with the uncertainty and changes surrounding the feed in tariffs there has been a lot of projects that aren't reaching financial close and a lot that aren't getting financing," explains one partner.

In the wider market, financing remains difficult to come by and this is also putting a brake on activity. One measure the Government has introduced to tackle this issue is the introduction of a project bond law. "They've loosened corporate legislation in regards to what companies can do. So SPVs which have the concessions for public infrastructure are now allowed to issue bonds," notes one partner.

As in the corporate lending market, debt is increasingly being seen as the favourable alternative to expensive bank loans and often the only option as banks pull down the shutters. While certainly not the answer to everything practitioners expect to see an increase in this type of work in the years to come.

Infrastructure mandates are still being seen, with upgrades to the Italian road network producing notable work, but, as with energy, banks are unwilling to commit to long tenures and getting projects of the ground can be challenging. "In general it's not been a particularly active market. In infrastructure you have the problem of liquidity and getting to projects to state where they might actually get financing. For authorisation reasons there is general slowness in the authorisation of infrastructure projects in Italy," observes one lawyer.

CONTEXT AND TRENDS
The nature of the wider economic environment means that unsurprisingly restructuring and insolvency mandates have been commonplace. However most of the deals being seen are recurring mandates, deals that have returned to the market having gone through a previous reordering....

CONTEXT AND TRENDS

The nature of the wider economic environment means that unsurprisingly restructuring and insolvency mandates have been commonplace. However most of the deals being seen are recurring mandates, deals that have returned to the market having gone through a previous reordering. This is born out of the pace of change in both the Italian market and the wider Eurozone, which is making agreements redundant almost as soon as they are drafted. "We have deals that are in the second round of restructuring. The old deals were based on financials that had an old outlook and now the economy is getting worse it has deluded the basis of the original restructuring plans so there needs to be more work done," observes one partner. With these second round restructurings, there has been a shift from "more private agreements" between parties to court controlled proceedings. "The first time around all these restructurings were based on agreements between debtor and creditors with very limited, if any at all, court intervention. But, with this second wave there is more need to cram down and impose on dissenting minorities certain unpopular measures. The need for court intervention is a little bit higher," notes one lawyer.

This is not to say that firms are not seeing new mandates as well, there are still many of distressed companies with balance sheet issues to address and in some cases banks are becoming more aggressive in their pursuits of debtors.

Generally, in terms of options, there is an increased move towards court-controlled structures, the likes of the concordato preventivo (agreement among creditors) and concordato fallimentare (agreement among creditors – after bankruptcy). These are in many cases allowing companies to continue in some form, with their structural issues patched up, at the same time avoiding they avoid the ignominy of full on liquidation. It is also a good option for creditors as while they may not get the full return on their loans and investments, conclusions are reached quicker and the return is often better than it would be if the parties involved had to pick over the carcass of the business in full on bankruptcy. In June 2012 amendments were introduced to the relatively new Italian Bankruptcy Act which will further facilitate corporate reorganisations. "It gives time to implement restructuring plans and, above all, the biggest thing it does from a tax perspective is to remove any negative tax consequences to a right off a debt," notes one lawyer.