How the oldest dairy company secured liquidity

Italy’s oldest dairy company received a loan secured by the cheese aging in its warehouses as part of a recent legislative change aimed at help food and wine producers gain access to financing.

Founded in 1784, Brazzale SpA secured 10 million euros from Cassa Depositi e Prestiti, using its aging products as collateral, as owner Roberto Brazzale stated at a press conference on Tuesday.

For decades, Italian cheesemakers have been familiar with inventory financing. The process works as follows: dairies store Parmesan wheels in Credito Emiliano’s vaults, thereby gaining access to credit, which allows them to pay farmers and cover other expenses while they wait for their products to reach the market.

New Liquidity Framework in Italy

However, the Brazzale transaction is the first to provide lenders with stronger control over inventory rather than merely a guarantee on it.

This was made possible by changes to Italy’s securitization law, which now allows companies to secure financing for unregistered goods, such as food, raw materials, and industrial products. Previously, such transactions were largely limited to assets such as real estate and financial receivables.

More specifically, the new framework is designed to allow companies to “remove these assets from their balance sheets and free up liquidity tied up in inventory” without having to wait for the products to be sold, according to Pietro Bellone, a partner at the law firm A&O Shearman in Milan.

“The law now explicitly recognizes the use of future receivables, underlying assets, and related rights, processed products, and substitute assets as assets that can be segregated or disposed of to repay the securitization transaction,” Annalisa Dentoni-Litta, a partner at the law firm Hogan Lovells Cadwalader in Rome, told Bloomberg.

The Benefits

Under the agreement with Brazzale, a special-purpose vehicle (SPV) named Magazzino Italia SPV will purchase cheeses that have reached the ripening stage from the dairy, while they remain in the company’s warehouses.

The transaction takes the form of a revolving credit facility, creating a continuous source of working capital during the aging and sale of the cheeses.

For companies whose products take months or years to produce—from Parmesan and cured meats to wine and other goods— the reforms could open up a new source of financing by converting warehouse inventory into assets that serve as collateral.

“The hope is to standardize the transaction and replicate it, so we can help many more companies,” said Giovanni Bossi, CEO of Cherry Bank, adding: “It could become a new financing tool for small and medium-sized enterprises.”

The reform may also attract private credit providers to the inventory-backed lending market, Bellone noted.

A Growing Sector

Asset-based financing is emerging as one of the fastest-growing sectors for private credit funds.

As competition intensifies in the traditional corporate lending sector, private credit managers are channeling more capital into loans secured by tangible assets and contractual cash flows, including receivables, infrastructure, and equipment.

Source: in.gr