Italy debt restructuring SCSp fund setup in Luxembourg

Name: Italy
Address: IT

by KNOWLEDGE CENTER | Dec 16, 2025 | Private debt/Private credit

How to Structure an Italy Debt Restructuring Fund Using a Luxembourg SCSp

Italy remains one of Europe’s most liquid debt-workout arenas, with banks and investors trading non-performing exposures (NPEs), unlikely-to-pay (UTP) positions, and re-performing loans. How sponsors use a Luxembourg SCSp to invest into Italian debt restructuring opportunities with institutional-grade governance and clear execution rules?

Across the EU, the gross stock of NPEs among significant institutions was reported at €373 billion in Q2 2025, which keeps the market active for professional credit investors.

Italy’s pipeline also links to cross-border borrowers and supply chains, which means deals often involve assets and counterparties in Germany, France, Spain, the Netherlands, and Central and Eastern Europe.

What “Italy debt restructuring” means in practice

We explain the common deal types seen in Italian workouts so you can design the fund strategy and documents around real transactions.

UTP restructurings: the borrower is still operating, but cash flow is stressed and lenders need a plan.
NPL acquisitions: loans are already non-performing, and value comes from recoveries, settlements, and enforcement.
Re-performing loans: loans improve after a workout and can be refinanced or sold.
Special situations: rescue financing, bridge loans, debtor-in-possession style funding where feasible, or structured settlements.

In Italy, UTP has been a major share of deteriorated loans, and many portfolios are managed through active servicing platforms and negotiated solutions rather than pure enforcement.

Why sponsors structure Italian restructurings through a Luxembourg SCSp

We highlight why the SCSp is regularly chosen for private debt and special situations strategies that need flexibility and clean investor alignment.

Contractual control: the limited partnership agreement (LPA) can hard-code investment limits, decision rules, and distribution waterfalls.
Tax transparency logic: many investors prefer a partnership-style vehicle for credit strategies, subject to their own tax analysis.
Institutional familiarity: the SCSp resembles Anglo-Saxon limited partnerships and fits common fund operations.
Operational readiness: the structure fits external AIFM setups, depositary oversight where required, administration, and audit workflows.

Damalion explains that the core objective is simple: a fund engine that can buy, restructure, and exit credit positions while keeping governance tight and reporting consistent. You may use the Special limited partnership structure, or a reserved alternative investment fund mainly. The securitization vehicle may make sense also for your plans.

Market numbers that shape the strategy

We highlight concrete figures that influence underwriting, portfolio construction, and timing.

Italy’s NPEs were reported around €54.8 billion in H1 2024 in market commentary citing PwC, with UTP as the largest component at about 53.8% of deteriorated loans.
PwC reported that Stage 2 loans in Italy fell from €211 billion to €177 billion in the first half of 2024, a 17% decrease.
Banca Ifis estimated annual NPE transaction volumes around €22 billion per year for 2025–2027, supported by a deep secondary market.
In servicing, scale matters: Reuters reported doValue signed new contracts to manage over €12 billion in loans in 2025, reflecting continued institutional demand for workout capacity.

These figures matter because they point to a market that is mature, competitive, and driven by specialized execution rather than “easy” distressed pricing.

Industries where Italian restructurings concentrate

We explain where debt stress and restructuring volume typically show up, and how a fund can define sector rules.

Hospitality and travel: city hotels, resort assets, and mixed-use tourism sites where seasonality and capex drive covenant pressure.
Construction and infrastructure supply chain: contractors and subcontractors facing delayed receivables and cost inflation.
Manufacturing: automotive components, industrial machinery, and packaging businesses exposed to export cycles.
Retail and consumer: mid-market chains, franchising groups, and logistics-heavy formats where working capital is critical.
Renewables and energy services: projects with contracted revenues, but refinancing pressure when rates rise or construction delays occur.
Real estate sponsors: development loans, value-add portfolios, and CRE refinancing gaps that can be solved with structured workouts.

Sector focus can be a competitive advantage if it is linked to a servicing network and repeatable playbooks.

Country examples that appear inside Italian credit deals

We highlight why “Italy deals” frequently include other jurisdictions and why the fund documents should allow it.

Germany: Italian lenders finance German suppliers; stress can flow back through receivables and guarantees.
France: cross-border trade and group structures can pull French subsidiaries into covenant negotiations.
Spain: servicing platforms and investors operate across Southern Europe, which affects pricing and exit optionality.
Luxembourg: SPVs and holding structures are common for investors and for deal-side ring-fencing.
CEE: manufacturing groups with plants in Poland, Czechia, or Hungary can drive group-level restructuring.

That is why fund terms often include clear rules on “Italian-led” exposures, group credits, and collateral located outside Italy.

Practical cases that sponsors model before launch

We explain four common cases used to stress-test the fund strategy and the operating model.

Case 1: UTP turnaround in manufacturing

The fund buys a senior secured UTP position of an Italian industrial supplier with German customers.

The restructuring plan includes covenant reset, new reporting, and a capex facility tied to confirmed purchase orders.

Exit paths include refinancing by a bank once performance stabilizes or selling the now re-performing loan.

Case 2: NPL portfolio with mixed collateral

The fund acquires a small-balance secured NPL pool backed by residential and light industrial collateral across Northern Italy.

Value is driven by segmentation, settlement offers, and selective enforcement where needed.

The fund uses a specialized servicer and sets monthly KPI targets for cure rate, liquidation timelines, and legal costs.

Case 3: Real estate sponsor refinancing gap

The fund provides structured financing to a sponsor with a partially leased asset facing a near-term maturity.

The solution can include a new senior loan plus a contingent component that steps down if leasing milestones are met.

Return drivers include fees, coupon, and potential upside via a refinancing take-out.

Case 4: Group restructuring with cross-border guarantees

The fund participates in a creditor arrangement for an Italian holding company with a French sales subsidiary and a plant in CEE.

The key work is intercreditor coordination, guarantee enforceability analysis, and a step plan for asset sales.

Document alignment is critical because proceeds may come from multiple countries and security packages.

How the SCSp fund typically invests into Italy

We explain the main routing options so the structure can match the asset type and counterparties.

Direct acquisition: the SCSp acquires loans or notes directly, subject to onboarding and operational constraints.
Luxembourg or Italian SPV: an SPV can be used for ring-fencing, local security, or servicer requirements.
Club deals: co-investments with other funds, family offices, or institutional partners.
Platform exposure: arrangements with servicers or originators where the fund commits capital to defined pipelines.

Documents should be consistent with the real-world workflow: sourcing, due diligence, acquisition, servicing, workout, and exit.

Roles you must define before first close

We explain the roles that typically determine whether onboarding moves fast or stalls.

General Partner: controls the SCSp and signs for the fund within defined limits.
Investment Manager or Advisor: sources and underwrites, subject to governance and conflicts controls.
External AIFM: where applicable, provides regulatory management and oversight under AIFMD frameworks.
Administrator: NAV logic where relevant, investor statements, capital account tracking, and notices.
Depositary: oversight and safekeeping duties when required by the chosen regime.
Auditor: annual audit and investor confidence on valuation and controls.
Servicer: critical for NPL/UTP execution, recoveries, and legal coordination.

Damalion highlights that the servicer and legal counsel selection often drives the performance dispersion between two funds with similar pricing.

Investment policy that reads well to institutional investors

We explain how to write a policy that is clear, investable, and enforceable in the LPA and offering terms. By following these tips, you will be able to communicate with our fund lawyer more effectively.

Target assets: define UTP, NPL, re-performing loans, and restructuring-linked financing tools.
Target obligor size: SME, mid-market, or large corporates, with country-of-risk rules.
Collateral rules: real estate, receivables, inventories, pledges, and guarantees.
Concentration limits: maximum per borrower group, per sector, and per region.
Leverage policy: whether the fund uses subscription lines, asset-level leverage, or none.
Valuation policy: define how loans are marked and how recoveries are booked.

Investors want to see what the fund can do and what it cannot do.

Timeline and operational path to launch

We explain a realistic launch path from concept to first close without adding unnecessary complexity.

Define the strategy and investable universe with 2–3 repeatable deal types.
Draft the term sheet and align it with the LPA and the offering memo.
Appoint core providers: AIFM (if needed), administrator, auditor, and depositary (if needed).
Prepare onboarding for investors, including AML/KYC and subscription workflows.
Set up bank accounts, payment controls, and signing rules that match the governance.
Finalize the servicing model for Italy: sourcing, data tape review, legal execution, and reporting KPIs.
Close initial commitments, then start acquisitions under clearly documented authority rules.

Speed depends on document quality, provider readiness, and bank onboarding. A clean file reduces loops.

HowTo: set up an Italy debt restructuring SCSp fund

We explain the practical steps investors expect to see when you describe the setup.

Choose the SCSp governance model and define GP decision limits and reserved matters.
Write the investment policy around Italian UTP, NPL, and restructuring-linked financings.
Select an external AIFM and key providers to support reporting and oversight, when required.
Build the Italian execution stack: servicer, legal counsel, and local advisors.
Define valuation, KPIs, and a workout playbook for each targeted deal type.
Launch onboarding and close subscriptions with consistent AML/KYC workflows.
Execute the first transactions and publish investor reporting on a fixed cadence.

Risk points you should address up front

We highlight the risks that sophisticated investors will ask about before they commit.

Legal timing risk: enforcement and court timelines can differ by region and asset type.
Data quality risk: loan tapes and collateral files can be incomplete without tight due diligence.
Servicer dependency: workout performance often depends on servicing capabilities and incentives.
Valuation risk: marking loans requires clear policies and consistent assumptions.
Concentration risk: avoid one sector or one sponsor dominating the book.
Exit risk: rely on more than one exit route; model conservative timelines.

Good documents do not remove risk. They make the risk measurable and manageable.

Damalion supports entrepreneurs, investors, and family offices with compliant incorporation, banking coordination, and legal/tax alignment. Please contact your Damalion expert now.

Glossary: Italy debt restructuring SCSp fund setup

We explain the key terms and asset types you will see in Italian restructurings and SCSp credit funds.

SCSp (Special Limited Partnership)

A Luxembourg limited partnership often used for alternative investment strategies, with contractual flexibility through its partnership agreement.

General Partner (GP)

The partner with management authority over the SCSp, responsible for decisions within the fund’s governance rules.

Limited Partner (LP)

An investor that commits capital to the fund and typically has limited liability, subject to fund documents and local law.

NPE / NPL

Non-performing exposure / non-performing loan, where the borrower is in default or close to default and the credit requires recovery actions.

UTP (Unlikely-to-Pay)

A credit classification where the borrower is not yet in default but is assessed as unlikely to repay in full without restructuring measures.

Re-performing loan (RPL)

A loan that returns to performing status after a workout, restructuring, or repayment plan.

Secured vs unsecured debt

Secured debt benefits from collateral or guarantees. Unsecured debt relies primarily on the borrower’s cash flows and credit standing.

Collateral package

The set of pledged assets and guarantees supporting repayment, such as real estate, receivables, inventory pledges, or share pledges.

Workout

The process of restructuring, settling, refinancing, or enforcing to maximize recovery value from distressed credit positions.

Servicer

A specialist platform that manages collections, restructuring negotiations, legal actions, and reporting for credit portfolios.

GBV (Gross Book Value)

The outstanding balance measure often used to describe portfolio size before recoveries, write-downs, or sales pricing adjustments.

Waterfall

The distribution order of proceeds among expenses, debt, preferred returns, and profit shares, defined in fund documents.

Frequently Asked Questions about Italy debt restructuring SCSp fund setup

We answer the most common questions investors ask before choosing this structure.

1) What is an “Italy debt restructuring” strategy inside a fund?

It is a private credit strategy that targets stressed or distressed Italian exposures, such as UTP, NPL, and restructuring-linked financings, with returns driven by negotiated outcomes, recoveries, and exits.

2) Why use a Luxembourg SCSp for an Italian restructuring strategy?

The SCSp offers partnership-style governance flexibility, an institutional fund format, and documents that can tightly define investment limits, decision rights, and distributions for professional investors.

3) Which assets can the fund buy in Italy?

The fund can target UTP positions, NPL portfolios, re-performing loans, rescue or bridge financings linked to a restructuring plan, and structured settlements, subject to the investment policy.

4) Which industries are most common in Italian restructurings?

Common sectors include hospitality, construction supply chains, manufacturing, retail, renewables services, and real estate sponsor financings where maturities and cash flow volatility drive restructurings.

5) How does the fund execute workouts in Italy?

Execution is typically run through a specialist servicer and local counsel, using segmented recovery plans, negotiated settlements, refinancing paths, and selective enforcement where needed.

6) Can the SCSp invest through an SPV?

Yes. Many structures use Luxembourg or Italian SPVs for ring-fencing, local security, or operational needs, provided the fund documents allow it and governance remains consistent.

7) Do investors need to be professional or well-informed?

In practice, SCSp fund offerings for this strategy are typically designed for professional or well-informed investors, subject to the distribution approach and applicable rules.

8) What is the role of an external AIFM in this setup?

An external AIFM can provide regulatory management and oversight where required, including risk management, compliance supervision, and reporting frameworks aligned with the chosen regime.

9) What is the difference between UTP and NPL for portfolio design?

UTP focuses on borrower rehabilitation and negotiated solutions, while NPL focuses more on recoveries and enforcement options. A fund can target one or both with clear KPIs and timelines.

10) How does the fund manage valuation for distressed loans?

It uses a written valuation policy that defines pricing inputs, recovery assumptions, timing, and independent controls, supported by consistent data from the servicer and the administrator.

11) What concentration limits are typical for an Italy restructuring fund?

Common limits include caps per borrower group, sector limits, regional limits, and collateral-type limits, plus rules on single-name exposures and sponsor-related risk.

12) Can the fund invest in cross-border credits linked to Italy?

Yes, if documents allow it. Many Italian credits involve foreign subsidiaries, guarantees, or collateral in other countries, so the investment policy should define “Italian-led” exposure clearly.

13) What data is required to underwrite an NPL or UTP position?

Core items include loan contracts, payment history, collateral files, legal status, guarantees, borrower financials, and a servicer plan that specifies timelines, costs, and likely outcomes.

14) How does the fund select a servicer in Italy?

Selection is based on asset class experience, local legal coverage, KPI reporting quality, incentive alignment, and the ability to execute negotiated settlements and enforcement efficiently.

15) What are typical exit routes for restructured Italian debt?

Exits commonly include refinancing take-outs, settlements, portfolio sales in the secondary market, sale of collateral assets, or holding re-performing loans to maturity.

16) How does the SCSp handle investor reporting for workouts?

Reporting often includes portfolio segmentation, recovery status, legal pipeline, cash collections versus plan, valuation movements, and a clear narrative on major cases and next steps.

17) Can the fund use leverage?

It can, if allowed by the documents. Leverage can be used via subscription facilities or asset-level financing, but investors typically expect clear leverage caps and risk controls.

18) How long do Italian restructuring investments typically take?

Timelines vary by asset type. UTP turnarounds can resolve faster with successful refinancing, while secured NPL recoveries can take longer depending on legal and collateral processes.

19) What is the main operational risk in this strategy?

Operational risk often centers on data quality, servicer performance, and legal execution timing. Strong governance and KPIs help reduce surprises and improve predictability.

20) What does Damalion typically coordinate for this setup?

Damalion typically coordinates the structuring workflow, provider onboarding, and bank account readiness, and supports alignment between governance, compliance expectations, and the operating model.