Observatory · Structured finance
When a mid-sized Italian company needs to fund growth, an acquisition or simply its working capital, the question it almost always asks is the same one: which bank will extend it credit, and on what terms. The question is legitimate, but it rests on an assumption that has cracked over the past fifteen years, namely that bank credit is the natural, if not the only, channel through which a company procures resources. The stress episodes the credit system has been through, from the sovereign debt crisis onward, have shown that this channel narrows precisely when it is needed most, and narrows in a largely undifferentiated way, hitting sound companies too, whose creditworthiness had not changed. It is from this observation, even before any theoretical preference for market-based finance, that interest in structured finance techniques arises.
In its essential form, securitisation performs an operation that is conceptually simple and legally sophisticated: it separates a pool of assets from the party that originated them. Receivables, or more generally rights to future cash flows, are sold to a vehicle set up for the sole purpose of acquiring them, which funds the purchase by issuing securities. Under Italian law, Law No. 130 of 30 April 1999 built around this scheme the decisive safeguard, namely asset segregation: the receivables sold form a separate estate, allocated exclusively to satisfying the holders of the securities and to paying the costs of the transaction, and are thus shielded from the affairs of both the originator and the vehicle itself.
The economic consequence of this separation is what makes the technique interesting. Whoever buys the securities no longer prices the risk of the company as a whole, with its existing debt, its history and its shareholders, but the risk of that specific pool of assets and its capacity to generate cash flow. Tranching, that is the division of the securities into classes with different degrees of subordination, completes the design, because it allows risk to be distributed according to the appetite of different investors, reserving for the most protected class a profile that can turn out better than that of the originator considered as a company.
Here lies the point that needs repeating most often in professional practice, because it is the one that generates the most mistaken expectations: structured finance does not create creditworthiness, it reorganises it. A portfolio of unrecoverable receivables does not become bankable because it is sold to a vehicle, and a project lacking credible cash flows does not improve because it is wrapped in a complex contractual structure. The structure serves to make visible and separable a value that already exists, not to produce it.
If the technique has been known for decades, the reason why the fabric of small and medium-sized enterprises struggles to access it is not legal but dimensional and informational. A securitisation transaction carries significant fixed costs, including setting up and running the vehicle, due diligence on the portfolio, contractual documentation, the servicer, the agent bank, and, where needed, the rating. These costs are justified only on volumes that a single mid-sized company can rarely reach on its own. Added to this is a less visible but more insidious obstacle, namely data quality: securitisation requires reliable historical series on receivables, on their age, on default and recovery rates, and many companies simply do not hold them in the form an investor demands.
The market has responded with solutions that reduce both problems. Minibonds, introduced into Italian law by Decree-Law No. 83 of 22 June 2012, converted with amendments by Law No. 134 of 7 August 2012, opened up to unlisted companies the possibility of issuing debt securities aimed at qualified investors. Basket bond programmes, which aggregate several issuers under a common structure, and multi-originator transactions, which pool portfolios from several originators, spread the fixed costs over a sufficient critical mass and allow companies too small on their own to access the same market. In these architectures the advisor's role changes in nature, because the work no longer consists in finding the financial counterparty, but in building the object that counterparty can actually assess.
Regulation (EU) 2017/2402 rewrote the European framework for securitisation, imposing a general regime of transparency and due diligence and establishing the category of simple, transparent and standardised transactions. Two elements deserve attention even from those who do not habitually operate in the capital markets. The first is the requirement to retain a material net economic interest, of no less than five per cent, on the part of the originator, sponsor or original lender: a rule born of the lesson of the 2007 and 2008 crisis, when the ability to transfer risk in full had misaligned the incentives of those who originated credit from those who bore it. The second is the bundle of disclosure obligations, which has made the quality of documentation not an ancillary formality but a condition of access.
For an Italian company this means that the road to structured finance runs through a preliminary investment in informational order. The financial structure is the last step, not the first. First come the data, their traceability and their consistency with the accounts, the governance that produces them, the contractual documentation underpinning the receivables sold, and the prospective sustainability of the cash flows under scenarios that include unfavourable ones too.
It would be a partial reading to present structured finance only as an opportunity. Complexity carries a cost in terms of transparency, and recent history shows how quickly a chain of sophisticated transactions can become opaque even to the operators taking part in it. Reliance on rating judgements, when it substitutes for the investor's own analysis rather than complementing it, reproduces exactly the vulnerability the regulator sought to correct. And the very asset segregation that protects investors can produce, on the company's side, a depletion of the assets available to its remaining creditors, with effects that must be assessed before proceeding, not after.
For this reason the more useful perspective is not one that pits bank credit against market finance, but one that treats the two sources as complementary and chooses between them according to the nature of the asset to be financed. A long-term infrastructure investment with contracted cash flows, a revolving portfolio of trade receivables, and a seasonal working-capital need are three different problems, calling for three different answers, and the most frequent mistake is to apply the same solution to all of them because it is the one best known.
The research centre follows this theme on two levels. At company level, the work concerns the concrete conditions that make an asset transferable and a project bankable, and the gap, often underestimated, between the documentation a company holds and the documentation a financial counterparty expects to see. At system level, attention turns to the effects that the evolution of funding channels produces on overall stability and on companies' ability to get through periods of crisis without a temporary liquidity difficulty turning into a solvency crisis.