Innovative Italian Government Guarantee for NPL Securitisations a Model for Other Countries?

Countries with banking systems weighed down by large NPL portfolios will be monitoring the introduction of an Italian State guarantee (Garanzia Cartolarizzazione Sofferenze - GACS) later this year.  The government guarantee will only apply to eligible investment-grade senior notes in NPL securitisations, and it is expected that the fee to be paid for the government guarantee will be priced at arm's length and will therefore not be classified as State aid.  The goal of the guarantee scheme is to maximise the value of the NPLs being securitised, especially when compared with the unattractive alternative of a fire sale of the distressed assets.  However, it remains to be seen whether the pricing of the transferred NPLs will be attractive enough to generate sufficient investor appetite in the junior tranches.  If this mechanism proves successful, it may prove to be an interesting model for other countries....
A number of countries have successfully used government guarantees to improve banks’  access to funding, and to support the proper functioning of their national securitisation markets - primarily in mortgage-backed securitisations.   These include Canada, the USA and the Netherlands.  In the Netherlands, the fear of having to sell a home while in negative equity is eased in many cases by the National Mortgage Guarantee, which covers the borrower’s residual debt, subject to a maximum of €245,00 (€225,000 from 1 July 2016).