Italy – New Measures to enhance Italian debt capital markets

The Italian legislators and CONSOB enacted new measures, as part of a general attempt to modernize the market infrastructure¹.

The new rules relate to, inter alia, the following: 

• The issuance of unlisted debt securities has been facilitated 
• The turnaround time on Consob’s scrutiny of prospectuses
• The reduction of Consob’s supervision fees
• Simplification of supporting documentation to be filed in connection with prospectus approvals
   

The issuance of unlisted debt securities has been facilitated

Joint-stock companies: since 2012, Italian joint-stock companies (società per azioni) were exempted from the application of the thin capitalization rule² when bonds are listed on regulated markets and MTFs.

A new exemption is now available for the issuance of unlisted bonds if they are subscribed for, and traded with, professional investors only. 

Limited-liability companies: currently, debt securities issued by Italian limited-liability companies (società a responsabilità limitata) are subject to specific rules, such as: (i) the requirement that such debt instruments be subscribed for only by professional investors who are subject to prudential supervision and (ii) in case of the subsequent resale of the securities, that the seller could be exposed to liability towards subsequent holders in case the issuer becomes insolvent. The extent of the liability regime has been discussed among scholars and practitioners and is untested in courts.

The Capital Markets Bill allows the issuance of debt securities by limited-liability companies (società a responsabilità limitata) more broadly to professional investors (i.e. also including investors who are not subject to prudential supervision) and disapplies the liability regime in case of subsequent resales. 

By extending the beneficial regime to the broader category of professional investors, through the inclusion of investors who are not subject to prudential supervision, it will be easier for Italian private joint stock companies to comply with the thin capitalization rule without the need to list the bond (although a listing may still be needed if there are any doubts on the qualification of the investor (also from a withholding tax perspective) or otherwise as required by the investor’s internal investment policies). 

Enhancing the Efficiency of the Review and Approval Processes for Debt Securities Prospectuses

CONSOB has introduced a structured timeline for providing feedback in connection with prospectus relating to debt securities, but a similar procedure is yet to be introduced with respect to equity issuances.

CONSOB expects to provide its feedback in accordance with the following timeline: 

• Within two business days following the receipt of the approval request, initial feedback on key potential issues of the draft prospectus;
• Within six (five in case of wholesale offerings) business days from the initial submission, formal feedback; and
• Within three (two in case of wholesale offerings) business days from the relevant resubmission, any subsequent feedback.

This measure is consistent with the approach taken by other European regulators and is aimed at leveling the playing field between exchanges.

Reduction in Supervisory Fees: Implications for Issuers

Supervisory fees borne by issuers of securities applicable from January 2024 have undergone a substantial reduction.

Specifically, for offerings targeted at institutional investors, the fees are now fixed (previously were set as a percentage of the offering’s value). 

For offerings targeted at retail investors, the variable component of the fee, which is calculated in relation to the offering’s value, has been decreased by 50%. Moreover, the new rules introduce a new maximum cap that is significantly lower than before, reducing the financial impact on issuers focusing on this segment of investors.

Simplification of supporting documentation to be filed in connection with prospectus approvals

Application forms in connection with prospectus approval will now be simplified and will set out a limited number of information requested. In addition, forms will be available in English.

This new rule aims to facilitate a more harmonized process for prospectus submissions across European member states. The formal amendment to the Issuers Regulation was officially published on February 20^th, 2024.

Conclusions

The new rules are part of a broader initiative by the Italian legislator and CONSOB to streamline and simplify regulatory compliance and facilitate private companies’ access to debt financing, aiming to enhance the attractiveness of the Italian capital market while safeguarding investors. This effort meets market operators’ expectations, facilitates access to debt markets by Italian private companies and reduces their regulatory burdens.

_{1 For more information, please consult https://www.consob.it/documents/1912911/3990887/cs_20240226.pdf/d37309bd-f6dc-00cc-779c-a741cb85432b?t=1708934016419. 
2 The total amount of bonds outstanding (and guarantees issued in respect of bonds issued by other companies) may not exceed twice the sum of share capital, statutory reserve and available reserves resulting from the most recent balance sheet.}
 

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