Private debt picks up steam in Italy

Despite lending activity in the Italian market having historically been the undisputed domain of banks, direct debt funds and alternative lenders are gaining momentum. This radical change started when the Italian government recognised the need to diversify the sources of liquidity accessible to SMEs and introduced legislative and fiscal reforms.

"The alternative lending market in Italy has grown significantly since the last regulatory reforms were passed in 2016 and the number of players has increased considerably," says Hogan Lovells partner Carlo Massini. "Several firms are now fundraising and some are collecting capital for their second or third private debt fund."

Fundraising activity has been vibrant in Italy in recent months with the launch of several vehicles. Anthilia's €300m third private debt fund expects to hold a first close on €150m and will invest in bonds, in addition to providing some direct lending. Furthermore, DeA Capital Alternative Funds is raising its first private debt fund, DeA Capital Private Debt, which has a target of €150m and plans to hold a first close on €80-100m by year end.

Despite maintaining a symbiotic relationship with the private equity industry, Italian private debt funds have developed more independent and flexible strategies to meet the needs of a smaller market, which is growing and looking for alternative sources of financing.

"Sponsored deals continue to make up an overwhelming proportion of the European market," says DeA Capital Private Debt managing director Pier Felice Murtas. "But for smaller debt funds like the Italian vehicles, which provide tickets of around €7-8m on average, the only way to be involved in a large buyout transaction would be in syndication with a bigger vehicle, or by taking up a tranche B of a larger leveraged loan. Therefore, our private debt funds focus more often on expansion and growth capital operations, where they deploy long-term financing and sometimes acquire a minority stake, thus acting as competitors to private equity funds."

The alternative lending market in Italy has grown significantly since the last regulatory reforms were passed in 2016" – Carlo Massini, Hogan Lovells

Long-term solution
In a mid-sized market such as Italy, composed of growing SMEs eager for financing, private debt could grow to rival private equity. "Unlike a private equity fund, which is limited by its need to exit the investment at the end of its cycle, a private debt fund can offer a more suitable solution to companies looking for long-term financing, with a lesser impact on governance," Murtas says.

"Our private debt funds are focused on financing the development and expansion of companies with revenues between €30-250m, which constitute the backbone of our economy," says Giovanni Landi, Anthilia founding partner. "We offer debt facilities tailored to the specific needs of businesses, usually with an amortising structure to finance long-term growth plans and to avoid the burden of an excessive final bullet."

While the private debt market is still mainly composed of listed and non-listed bonds, the lending market has seen a rise in direct lending facilities. "We have seen some alternative lending opportunities gaining momentum for their rapidity and flexibility of execution and development," says Landi. "Anthilia plans to dedicate part of its new fund to direct lending and is looking into digital and direct landing platforms to complement its more traditional bonds offer."

Despite activity picking up, the private debt market is yet to overcome the limits imposed by its late development and reduced size. To help boost fundraising, stronger support from the state would be needed in terms of incentives and more substantial investments via Fondo Italiano d'Investimento.

Additionally, an opportunity to help the market grow arose with PIRs, which were launched by the government to increase investments in local companies and are expected to raise more than €60bn by 2021. These saving schemes offer a five-year investment plan that benefits from fiscal incentives, including exemption from capital gain and inheritance tax. This makes them particularly suitable for private debt funds that deploy medium and long-term illiquid investments.

Landi says: "It will be a lost opportunity if part of this capital is not directed toward private debt funds, which can guarantee long-term investments and support the growth of the Italian real economy composed of family-owned SMEs."

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• Topics
• Southern Europe
• Financing
• Italy