Founder and CEO of CFE Finance Group, Mario Cordoni, speaks on Milano Finanza to comment on the bonds on health loans

With negative interest rates likely to persist and inflation in Italy at 3.4%, finding profitable investments is not easy. As a result, banks are promoting alternative assets, which are often unlisted, illiquid, and complex in construction. One such example is securitization backed by public administration receivables, such as those from private healthcare clinics invoicing the local health authorities. Historically, the Italian state has been slow in paying its bills, with some debts taking months or even years to settle.

In its second-quarter report, Banca Generali set aside €80 million on securitizations placed with clients, structured with this logic. The bank, led by CEO Gian Maria Mossa, explained that the decision followed some challenges in recovering healthcare receivables, exacerbated by the prolonged pandemic and an assessment of its credit portfolio. This review, conducted with a market expert, revealed a lower-than-expected valuation. The provision was made based on the assumption that all involved parties would accept the purchase offer from the bank, totaling €478 million.

Having such instruments in a portfolio requires a thorough understanding of their mechanics, as bond issues, when they mature, do not lead to default if not repaid, as explained by Mario Cordoni, CEO and founder of CFE Finance, a Swiss investment banking boutique specializing in niche credit strategies with €1.5 billion in assets under management. CFE Finance structured the securitizations in which Banca Generali invested. “We also subscribed to them,” Cordoni adds. “We subscribed to the junior tranche, which is riskier, while the senior tranche went to the bank. We have not made any write-downs, and we are confident we will recover the investment with a good return.”

These bonds, which are unrated, have three- and five-year terms and a 4% coupon paid monthly. “The first issue, maturing at the end of 2019, was fully repaid six months early. The second one matured months ago and was repaid for about two-thirds of its value,” Cordoni continues. “This can happen, and it was exacerbated by the repeated lockdowns, which forced courts to close or reduce their operations. To get the public administration to pay, you also need lawyers, forcing the state to settle its debts. But a delay in repayment doesn’t lead to a default on the securitization vehicle, nor on the issue itself. At worst, the repayment period is extended, which is well understood in the professional market,” he adds. Hedge funds like Apollo, Blackstone, York, and Elliott, as well as Italian firms like Banca Sistema and BFF Bank, highly appreciate this type of investment because the EU has imposed an 8% annual penalty on Italy for invoices paid more than 60 days late.

Banca Generali explained in its latest quarterly report that it made this decision to protect professional clients from potential losses related to investments in healthcare receivables securitization bonds. The €80 million provision relates to the estimated maximum impact of the purchase offer the bank will make, paying clients no less than what they initially invested, “minus the repayments and collected coupons.” If the bank keeps the securitizations in its portfolio, it could ultimately realize capital gains. CFE Finance has structured 15 securitizations over five years with hedge funds and family offices from Switzerland and the UK. Before founding CFE in 2001, Cordoni served as Co-Managing Director of Cofime (Compagnia Finanziaria Mercantile di Torino) and, since 1985, at Socona Holding (Geneva), where he led branches in Algeria and Morocco.

Milano Finanza, 2 October 2021