31-gennaio-2023 –

Italian financial firm J-Invest stands to gain after a court ordered Italy’s government to compensate Itavia’s creditors and shareholders

In 2008, Jacopo Di Stefano opened a small investment company aiming to buy loans taken out by bankrupt Italian businesses. The wheels of Italian justice can move excruciatingly slowly, so he figured he could make some money by giving frustrated creditors a tiny fraction of the face value of loans that they’d long given up on and cashing in if they’re ever paid off. Working alone, he spent hours studying cases, looking for anywhere it appeared the debtors could be forced to repay.

Among the faded corporate stars he uncovered, one company stood out: Aerolinee Itavia SpA. The airline had operated on and off from the late 1950s to 1980, offering short-hop domestic flights in competition with Italy’s flag carrier, Alitalia SpA. On June 27, 1980, Itavia Flight 870 from Bologna to the Sicilian capital, Palermo, plunged into the Tyrrhenian Sea about 50 miles shy of its destination. All 81 people on board were killed.

The Italian government that December withdrew Itavia’s license on safety grounds, effectively shutting it down. Itavia sued the government, arguing that it wasn’t at fault in the crash, raising the possibility that the state might be forced to compensate the airline’s owners and creditors. The legal wrangling went on for decades, and in 2009 Di Stefano stumbled onto a list of Itavia’s creditors. Examining the piles of documents, he sensed opportunity. Banks still reeling from the 2008 financial crisis were happy to offload Itavia debt for as little as 1.5% of face value. And because there was a chance that what was left of the airline could prevail in court, Di Stefano thought the loans might have significant value.

The wreckage of Itavia Flight 870, a McDonnell Douglas DC-9 that investigators say was probably brought down by a missile.Source: Alamy

He soon began purchasing any loans to the long-forgotten carrier he could find, from creditors as diverse as big Italian banks, the automaker Fiat, and Hawaiian Airlines, buying debt with a nominal value of €18 million ($19.6 million) over the next decade or so. He later started buying Itavia’s once worthless stock, ultimately accumulating almost three-quarters of its shares.

Di Stefano’s company, J-Invest, focuses on so-called distressed assets. When companies go bankrupt, they rarely disappear entirely. Instead they live on in lawsuits among creditors, shareholders and whoever has the misfortune of sorting through remaining assets in search of pockets of value. Buying up old credit claims on these companies, or even shares trading for pennies, can pay off big time if courts rule in your favor and there’s something worth salvaging. But these investments can also evaporate if the shares and debt indeed become what most of the world thought they were initially: worthless. The key is to “be patient,” says Bevis Metcalfe, a partner at law firm Cadwalader, Wickersham & Taft in London. “These types of trades usually involve litigation risk but can offer compelling returns.”

Over the years, Di Stefano has expanded his operation to more than three dozen employees, investing in debt from freight haulers, steelmakers, tanneries and more. And he’s started putting together packages of bad loans from various companies—bundling them into securities and selling pieces to investors. He says the nominal value of his investments today is about €4 billion, though he paid a fraction of that, and any eventual payouts won’t yield that much. But his biggest bet has been Itavia. Together, the loans and shares could make him a profit topping €100 million, according to data compiled by Bloomberg News from court documents. “For us, it’s the trade of a lifetime,” Di Stefano says.

What happened to Flight 870 remains a mystery. Initially, the government blamed the crash on shoddy maintenance. But in 1986, investigators began to recover chunks of the fuselage from the seabed and reassembled them at a military airport near Rome. Five years later they found the black box data recorder. After studying the wreckage, they concluded that the jet had likely been hit by a missile—perhaps aimed at a plane carrying Libyan dictator Moammar Qaddafi, believed to have been nearby—or brought down by a terrorist bomb on board.

Those conclusions led a judge in Rome to rule in 2003 that the government had failed to protect Italy’s airspace and wrongfully forced Itavia into bankruptcy. That unleashed round after round of appeals that made their way to Italy’s Supreme Court. In 2020 a court in Rome decided in favor of Itavia shareholders and creditors, ordering Italy’s Defense and Transport ministries to pay the administrators €330 million (beyond compensation already paid out to families of the crash victims). That spurred Di Stefano to double-down on the stock, taking out a loan from an Italian bank to buy more.

Distribution of the money from the state finally kicked off last November, unleashing claims from banks and suppliers and groups such as J-Invest that hold their old debt. Once that process plays out—it will likely still take years—Di Stefano and any other remaining shareholders will split whatever is left. The loan payouts he’ll receive, Di Stefano says, will give him a 20% annualized return on the Itavia debt he holds. And other companies he controls stand to gain as much as six times what he bet on the airline’s shares. “J-Invest grew with the Itavia trade,” Di Stefano says. “We spent so much time and energy on it. I can’t believe the end is in sight.”