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Shipping and mini-bond

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Avv. Michele AutuoriAssociate, Watson, Farley & Williams

Shipping and the Law 2013

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Introduction

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- Italian companies rely mostly on traditional bank financing as source of funding and this is particularly true, with some exceptions of certain listed companies, for the Italian shipping industry- The banks, due to the financial crisis and in order to comply with the requirements of Basel III, are lending less- Italian unlisted companies were formerly excluded from the capital market with a consequential reduction of their competitiveness

Accessing the bond market would allow Italian companies to: Diversify their source of funding Obtain better conditions which are potentially more favourable than

those offered by the banking system, either in terms of pricing, which takes into account the specific characteristics of the companies and in terms of duration, which better suits long term projects

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The legal framework

• Law decree no. 83 of 22 June 2012, published on the Official Gazette (Gazzetta Ufficiale) with no. 147 on 26 June 2012, converted into law, with amendments, by Law no. 134 of 7 August 2012 (the “Development Decree”)

• Law decree no. 179 of 18 October 2012, converted into law by law no. 221 of 17 December 2012 (the “Development Decree Bis”)

• Law no. 43 of 13 January 1994 providing the legal regime of the financial promissory note (cambiale finanziaria), as amended by the Development Decree (the “Financial Promissory Note Regime”)

• Legislative decree no. 385 of 1 September 1993, as amended and supplemented (“TUB” (i.e. the Consolidated Statute on Banking Law))

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The context

Art. 32 of the Development Decree, as amended and supplemented, concerns:• Financial promissory note: short term debt instruments, and • Mini-bond: mid to long term debt instruments (bonds and similar

instruments, bonds with subordination and participation clauses)

Main targets:• Enhancing financing instruments alternative to the bank financing by making

more attractive different forms of funding• Allowing SMEs to access the capital market so as to attract professional

investors (investitori qualificati)

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Financial promissory note in the former regime

• Instruments to order issued in series, duration comprised between 3 and 12 months and minimum value of € 50,000

• Similar to the ordinary promissory notes which constitute title for enforcement (titolo esecutivo)

• Limit to the issuance: not exceeding twice of share capital, legal reserve and available reserves

• In case of issuance by an unlisted company:- Last three profitable financial years- Secured, for 50% of the subscribed value, by banks or financial

institutions provided under art. 107 of the TUB

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Debenture loans in the former regime

• Instruments provided under art. 2414 of the Italian c. c.• Issuer: Italian SpAs (i.e. joint stock companies), Italian Sapas (i.e.

limited liability partnerships by shares)• Limit to the issuance, pursuant to art. 2412 of the Italian c.c.: not

exceeding twice of share capital, legal reserve and available reserves, unless:

- The amount in excess is subscribed by professional investors- The issuance is secured by first ranking mortgage over owned real estate

up to 2/3 of the real estate value- The bonds are issued by a listed company but within the limit of the bonds

to be listed on regulated markets

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Financial promissory notes and mini-bond in the actual regime

Financial promissory note Mini-bond

(i) Duration: from 1 to 36 months

(ii) Purpose: working capital

(iii) Limit: current assets (attivo circolante)

(iv) Sponsor: needed (non SMEs may avoid it)

(v) Stamp duty not applicable if dematerialised

(i) Duration: not less than 36 months

(ii) Purpose: investments

(iii) Limit: none (if listed)

(iv) Sponsor: not required

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Debenture loans: a comparison

Art. 2412, paragraph 5, Italian civil code

Prior to the Development Decree Following the Development Decree

The maximum amount for which bonds may be issued (twice of share capital, legal reserve and available reserves) shall not apply to debenture loans:(i) Issued by listed companies and,

contextually(ii) To be listed on a regulated market

The maximum amount for which bonds may be issued shall not apply to the issuance of bonds:(i) To be listed on regulated markets or

on multilateral trading facilities (MTFs), or

(ii) Which give the right to acquire or to subscribe shares

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The deletion of the requirement for the issuer to be listed has reduced the competitive gap between listed and unlisted companies

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Mini-bond: an integrated process

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COMPANY

ADVISOR ARRANGER

RATING AGENCY

LAW FIRM

LISTING

PLACEMENT WITH PROFESSIONAL INVESTORS

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Recent transactions

After the entering into force of the Development Decree, 11 debenture loans have been issued by mid to large companies by listing, inter alia, either financial promissory note or mini-bond on the ExtraMot PRO:

How “mini” are the mini bonds?C.A.A.R. S.p.A. and Fide S.p.A. - the only mini-bond experiences- Amount of 3 million euro each- Duration 5 years and 3 years, respectively- Yield 6.5% and 2.95%, respectively

Shipping companies?There seems to be a lack of interest in the new instruments

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Aggregate amount roughly equal to 2 billion euro

All references to ‘Watson, Farley & Williams’ and ‘the firm’ in this presentation mean Watson, Farley & Williams LLP and/or its affiliated undertakings. Any reference to a ‘partner’ means a member of Watson, Farley & Williams LLP, or a member or partner in an affiliated undertaking, or an employee or consultant with equivalent standing and qualification. This presentation constitutes attorney advertising.

© Watson, Farley & Williams 2013

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