Italy drives record European NPL securitisations

The Italian GaCS scheme, expected to be replaced this year, has boosted European securitisations of non-performing loans to €11.7bn, from €2.6bn in 2017.

The transfer of non-performing loans to securitisation vehicles in Europe totalled €11.7 billion last year, up from €2.6 billion in 2017, according to data from rating agency DBRS.

Record issuance volumes were driven by Italy’s NPL securitisations, which accounted for more than €11 billion or 96 percent of the total volume issued in Europe.

The Garanzia Cartolarizzazione Sofferenze (GaCS) scheme allowed banks to securitise loan portfolios with the provision of a government guarantee on the senior tranche. The scheme has helped Italian banks to issue 21 transactions since 2016, including 14 last year and two in 2019.

GaCS expired this month, having been extended numerous times from its inception in June 2016. Owing to restrictions on state aid, the European Commission required the scheme to be only temporary and it therefore needed to be renewed every six months.

However, the Italian government has come up with a proposal to replace the expired scheme. The new scheme is expected to be structured with a two-year term and a one-year extension option. It is also envisaged to require a higher rating level of BBB versus the prior minimum of BBB (low) on the most senior tranche.

Real Estate Capital understands the Italian government will discuss the new proposal today. Once the scheme is agreed, it will need the approval of the European Commission. The next step would be implementation into Italian law, which is expected to take as long as two months, a source said.

Gordon Kerr, head of European research, global structured finance at DBRS, told Real Estate Capital: “The new scheme will directly affect Italy with a continuation of the securitisation of non-performing loans. Volumes are likely to be lower than 2018, but we expect to see steady issuance.

“Away from Italy, the GaCS scheme has had an influence by restarting the securitisation of non-performing loans and opening the market for other countries. We expect future issuance from countries already in the market – Italy, Ireland and Portugal – but we also expect issuance to emerge from Spain, Greece and potentially others.”