(Bloomberg) -- Italy’s Enel SpA is in talks with banks on a new €16 billion ($15.8 billion) state-backed credit line to cover derivatives risks linked to spiking energy prices, according to people familiar with the matter.

Under the plan, the country’s trade-credit insurer Sace would provide guarantees for around 70% of the total amount, said the people, asking not to be named discussing confidential deliberations. 

The facility is the brainchild of the outgoing Mario Draghi administration, which devised the plan to shield companies like state-controlled Enel from the hit to energy costs resulting from the Russian invasion of Ukraine, according to the people. 

Italy’s biggest lenders, UniCredit SpA and Intesa Sanpaolo SpA, could contribute €5 billion each, while state-backed Cassa Depositi e Prestiti SpA and two other banks, Banco BPM SpA and BPER Banca SpA, would all add €2 billion each, people with knowledge of the matter said. 

Enel is now working with creditors on the plan, which would likely involve a revolving credit facility for as long as 18 months, according to the people. That would allow the company to proceed with its current financing program without forcing it to set aside cash for margin calls if gas prices continue to soar.

European utilities are facing higher costs in borrowings with investment-grade rated names paying more than 100 basis points over Euribor for a three-year term, according to data compiled by Bloomberg. 

Marked to Market

The credit line is seen as necessary to cover the company since energy derivatives contracts are marked to market, the people said. Still, the structure of the deal has not yet been defined as talks remain preliminary, they said. 

The banks are awaiting approval from the Finance Ministry, which could arrive as soon as early afternoon on Tuesday, the people said. The ministry is working to confirm that the assurer’s guarantor role can also be used for credit facilities and to cover margin calls, they said.

A representative for Enel declined to comment. Representatives for UniCredit, Intesa Sanpaolo and Banco BPM also declined to comment. A spokesman for BPER wasn’t immediately available for comment. Italian daily Il Messaggero reported some of the details on the plan earlier Tuesday. 

Italy’s government has spent €66 billion on energy-bill relief measures, and Giorgia Meloni, leader of the right-wing coalition that won last month’s election, has pledged to tackle the energy crisis as a top priority.

Enel confirmed its 2022 targets and dividend policy when it reported half-year results, though Chief Executive Officer Francesco Starace said he expected the environment for the electricity business to continue to be tense, with prices remaining high into the new year. 

 

(Updates with Finance Ministry in seventh paragraph.)

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