(Bloomberg) -- Italy's oldest dairy company has borrowed money against cheese aging in its warehouse, taking advantage of a law change aimed at helping food and wine producers access finance.
Brazzale SpA, a company founded in 1784, raised €10 million ($11.4 million) from Italy's state lender Cassa Depositi e Prestiti and Cherry Bank SpA, backed by products in the maturation process, owner Roberto Brazzale said at a press conference on Tuesday.
Italian cheesemakers are familiar with inventory financing. Dairies have been depositing wheels of parmesan in Credito Emiliano's vaults for decades, gaining access to credit that allows them to pay farmers and other costs while they wait for their products to get to market. Brazzale's transaction is the first, however, to give financing parties stronger control of the inventory, not just a guarantee over it.
It was made possible by changes to Italy's securitization law, which now allows companies to obtain financing on non-registered goods including food products, raw materials and manufactured items. Previously, such transactions were limited largely to assets such as real estate and financial receivables.
The new framework is designed to let companies "deconsolidate these assets from their balance sheet and unlock liquidity tied up in inventory" without waiting for the products to be sold, according to Pietro Bellone, partner at law firm A&O Shearman in Milan.
"The law now expressly recognizes the use of future receivables, the underlying assets and related rights, processed products, and substitute assets, as assets that may be ringfenced or allocated to the repayment of the securitization transaction," said Annalisa Dentoni-Litta, a partner at law firm Hogan Lovells Cadwalader in Rome.
Time to Market
In the Brazzale deal, a special purpose vehicle called Magazzino Italia SPV will purchase maturing cheese from the dairy while it remains in the company's warehouses. The transaction is structured as a revolving facility, creating an ongoing source of working capital while the cheeses mature and are sold.
For companies with products months or years in the making, from parmesan and cured meats to wine and other goods, the reforms could open up a new source of financing by turning warehouse inventories into collateralized assets.
"The hope is to standardize the transaction and replicate it to help many more companies," said Giovanni Bossi, chief executive officer of Cherry Bank. "It could become a new tool to fund small and medium enterprises."
The reform may also draw private credit providers into the market for inventory-backed lending, Bellone said.
Asset-based finance is becoming one of the fastest areas of growth for private credit funds. As competition intensifies in traditional corporate lending, private credit managers are deploying more capital into loans backed by tangible assets and contractual cash flows, including receivables, infrastructure and equipment. Inventory financing isn't risk-free, however. While cheese, like wine, can appreciate over time, the opposite is also possible.
Based near Vicenza, in the Veneto region, Brazzale has production sites in Brazil, US, China and Czech Republic.
--With assistance from Thomas Hall.
(Updates with comments from press conference in second and ninth paragraph.)
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