The Central Bank of Ireland has today issued its feedback statement on Consultation Paper 85 dealing with loan originating qualifying investor alternative investment funds (QIAIFs). In the feedback statement the Central Bank has announced that it will allow for the authorisation of QIAIFs that originate loans from 1 October 2014.
The Central Bank's AIF Rulebook is being updated to reflect this change.
To-date, Irish regulated funds have been prohibited from granting loans though they have been permitted to acquire loans on the secondary market. The Central Bank has stipulated a number of conditions and details of the main conditions are set out below.
This is a welcome development for managers looking to undertake loan origination in a regulated fund structure as well as for prospective borrowers which will have access to potential new sources of debt funding.
The main conditions which must be met by a loan originating QIAIF include:
- It must have an authorised AIFM or be authorised as an internally managed QIAIF that is authorised as an AIFM;
- Its main investment policy must be loan origination though it is permitted to acquire loans on the secondary market and to undertake ancillary activities. It will also be permitted to deal with assets acquired as a result of enforcement of security;
- The QIAIF (or its AIFM) must have a variety of procedures, policies and processes relating to a variety of matters linked to its loan origination activity;
- It must comply with rules regarding equal treatment of investors as regards due diligence opportunities afforded to them (though whether an investor takes up the opportunity is a matter for the investor);
- It must comply with a diversification requirement which will limit exposure to any one issuer or group to 25% of the Fund's net assets though this is subject to both a ramp-up and a ramp-down period at the beginning and end of the life of the QIAIF;
- It must not originate loans to certain classes of borrowers;
- It must comply with various requirements when acquiring a loan from a credit institution on a bilateral basis (but such requirements will not apply if the loan has been offered to multiple parties and is acquired on arms-length terms).
- It must have a comprehensive stress testing programme in place covering a variety of issues;
- It must be closed-ended (for AIFMD purposes which allows some flexibility);
- It is subject to a leverage restriction of 100% of NAV; and
- It is subject to enhanced disclosure requirements as regards its prospectus and periodic reports.
As a firm, we have been actively involved in advising regulated loan funds and advising unregulated loan originating structures and so are well placed to assist anyone looking to take advantage of this development.