Italian NPLs: Special Servicers Under the Magnifying Glass of Italian Courts

In this commentary, we analyse the decisions of some Italian courts that consider the distinction between master servicing and special servicing activities to be in breach of Italian Securitisation Law as well as the potential credit implications.

Summary highlights include:
-- A description of the regulation applicable to Italian servicers and relevant distinction between master and special servicing activities.
-- An analysis of the decisions of some Italian courts that consider the subdelegation of certain activities to a special servicer to be in breach of Italian Securitisation Law.
-- Our opinion on the possible impact on the credit ratings on Italian nonperforming (NPL) securitisation transactions.

“The Italian NPL market has been characterised by securitisation transactions where servicing activities are divided between a master servicer and a special servicer and this distinction has been clear over the recent past year. However, we noted that, during the last quarter of 2023, there were decisions in the Italian enforcement courts that suspended foreclosure proceedings started by securitisation special-purpose vehicles through their respective special servicers. It is not known whether such decisions were made in the context of an Italian NPL transaction that we rate. To date, we have not received any notification and/or communications from the special and/or master servicers (or other parties such as the representatives of the noteholders) involved in any Italian NPL transactions we rate”, stated Lorenzo Simonte, Assistant Vice President of European NPLs at Morningstar DBRS.