Covid-19 coronavirus: commercial papers in the ECB pandemic emergency purchase programme of 750 billion euros

Through this programme, the ECB has extended the Corporate Sector Purchase Programme ("CSPP") to commercial papers, which in the Italian legal system are issued in the form of cambiali finanziarie. Commercial papers are securities that allow companies to finance themselves directly on the capital market in the short term and also to benefit from an efficient tax regime in Italy.

The Pandemic Emergency Purchase Programme

Following the meeting of 18 March, the Governing Council of the ECB, through Decision (EU) 2020/440 of 24 March 2020, launched the Pandemic Emergency Purchase Programme ("PEPP"), with the aim of addressing the liquidity risk to which European economies are exposed (i.e. "to counter the serious risks to the monetary policy transmission mechanism and the outlook for the euro area posed by the outbreak and escalating diffusion of the coronavirus, COVID-19"). The PEPP envisages, inter alia, purchases by the Eurosystem's central banks of bonds and other debt securities issued by companies as part of a total financial commitment of EUR750 billion.

The Governing Council of the ECB has also arranged to extend the range of eligible activities within the CSPP (i.e. the corporate sector purchase programme carried out by the ECB as part of the Asset Purchase Programme). Thanks to the aforementioned expansion of the range of eligible financial instruments, the Eurosystem's central banks will also be able to purchase the commercial papers issued by non-financial companies, provided they are characterised by sufficient credit quality.

The requirements to access the PEPP purchasing programme

In order to access the PEPP purchase programme, the commercial papers must comply, mutatis mutandis, with the same criteria that apply to the CSPP, without prejudice for certain amendments that take into account the characteristics of commercial papers (e.g. terms of duration).

In particular, by way of a non-exhaustive example, the commercial papers must be issued by an issuer incorporated in an EU Member State whose currency is the euro, and which is neither a credit institution, nor an investment firm. In addition, the commercial papers must be denominated in euros.

Finally, the commercial papers shall have, inter alia,  a credit assessment in compliance with, as a minimum, quality step 3 in the Eurosystem's harmonised rating scale (currently equivalent to BBB-/Baa3 (S&P, Fitch/Moodys)).

Commercial papers under Italian law

Commercial papers were introduced in Italian law with Law 43 of 1994 as subsequently amended by Law Decree 22 June 2012, no. 83 converted with modifications with the Law 7 August 2012, n. 134 and with the Law Decree 18 October 2012, n. 179 converted with modifications with the Law 17 December 2012, n. 221.

Commercial papers are debt securities issued in registered form (titoli all'ordine), in series, and with a maturity of not less than 1 month and not more than 36 months from the date of issue. These securities can also be issued in dematerialised form and can be an alternative to financing in the medium-long term, by allowing companies to finance themselves directly on the market in the short term, at even lower costs than those associated with bank credit.

Furthermore, commercial papers can be listed on the professional segment of the ExtraMOT market, the multilateral trading system (MTF) organised and managed by Borsa Italiana and on the Short-Term European Paper Market (STEP).

Some tax considerations

In commercial practice, commercial papers can benefit from an efficient tax regime in Italy, which allows the issuer, when certain conditions are met, to make payments to qualified investors gross of withholding taxes or substitute taxes. Furthermore, in most cases, stamp duties or similar taxes are not applied to dematerialised securities. Similar considerations apply to securities with equivalent characteristics governed by English law and generally issued under the name of "euro-commercial papers".

When structuring the issuance programmes, it should be borne in mind that the tax regime for these securities may vary based on the characteristics of the issuer (including their residence), the securities themselves and any reference market. Therefore, the structure of the programme and the analysis of the financial instrument must take into account these considerations.

Conclusions

Due to the PEPP launched by the ECB to deal with the economic risks arising from the COVID-19 coronavirus, in the presence of the aforementioned eligibility requirements, the current market conditions and taking into account the aforementioned tax advantages, the commercial papers could represent a useful alternative tool in terms of short-term funding.