MILAN (Reuters) - Dealing with the extensive loan guarantees Italy provided to help businesses through the COVID-19 pandemic and energy crisis is proving complex, hampering efforts to fix some companies' debt problems, restructuring experts said.

Under successive emergency measures since 2020, Italy has extended guarantees on 189 billion euros ($205 billion) of bank loans.

The state guaranteed small loans in full through its Fondo di Garanzia fund run by state-owned bank MCC, and 70% to 90% of larger ones through credit export agency SACE, effectively allowing banks to shift significant credit risks onto taxpayers.

Economy Minister Giancarlo Giorgetti on Wednesday said it was time to gradually return to normality after what he called a massive state intervention, adding that the significant sums set aside to cover future guarantee payments appeared adequate.

However, how the guarantees are dealt with when borrowers start running into trouble has implications for the survival prospects of the companies involved.

Addressing a company's debt problems in a timely manner increases the chances of keeping it afloat.

Restructuring advisers warn of uncertainty over how to proceed if a business is in distress and part of its debt is covered by the guarantee. For example, this could affect the seniority pecking order among a company's wider creditor group.

"There is limited clarity...it's not impossible but it's a lengthy process with potentially several pitfalls along the way," said Pietro Braicovich, executive vice-chairman in Italy at DC Advisory.

"It would be useful to establish a clear legal framework so that specialists on the ground can build standard practices. That would reduce uncertainty and speed of execution."

After an extended period in which firms paid only the interest due on the guaranteed loans, they have now started repaying the capital.

Debt advisers are concerned about a further slowdown in proceedings if that means more guarantees are tapped, clogging the system.

"We've noticed that guarantee payments take more or less time depending on the size and complexity of the restructuring deal and the parties involved," said Alexandre Perrucci, a managing partner at Clearwater International in Italy.

"It's still early days, but going forward it will be necessary to understand how quickly state agencies [that extended the guarantees] can take action...if volumes rise."

Perrucci said that in the case of smaller loans, banks may have little interest in attempting to save a business when they can simply claim the guarantee.

The guarantee schemes allowed Italian lenders to turn part of their unsecured debt into secured obligations, with a zero risk weighting for the portion backed by the state.

Italy's biggest bank Intesa Sanpaolo had 49 billion euros in state-secured loans as of Dec. 31, its annual report showed.

But court rulings have voided some guarantees, further stoking uncertainty.

In January a court in the Piedmont region declared void a state guarantee contract saying the bank extending the loan ignored all evidence of the borrower's financial troubles, and granted the credit purely because the risk lied with the state.

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