Fund-SPV Structures In Ireland, May 2011

Author:Miss Sarah Cunniff, Dara Harrington and Deidre Sheehan
Profession:Arthur Cox

Ireland continues to lead the way in offering innovative financial services solutions for investment structures. Recognised as a global hub for investment funds, Ireland has an established investment funds industry with over €1.88 trillion worth of investment fund assets administered in Ireland.1 Ireland has also firmly established itself as a location of choice for the establishment of special purpose vehicles (SPVs) for structured finance transactions. Both industries provides vehicles through which investors can invest indirectly in a wide variety of assets through holding shares, units or bonds issued by these vehicles.2 The respective vehicles can also be combined to provide effective solutions at investor or asset level. In this briefing we summarise some popular structures available to the international financial services industry.

Structured Debt Funds

The combination of a qualifying investor fund ("QIF")3 with one or more Irish SPV subsidiaries has become increasingly common as a structure to invest in a wide variety of forms of debt obligation-type investment funds and, more generally, as a structure to minimise withholding taxes on underlying investments .

The Central Bank of Ireland (the "Central Bank") has approved a wide range of QIFs investing in debt of various types. These QIFs invest in various debt obligations from first loss and BB rated tranches of CDOs to investment grade debt, leveraged loans (such as leveraged loans traded on the U.S. and European loan markets) and various tranches of asset-backed securities ("ABS"). Investments in leveraged loans are acquired not only through participations and sub-participations but also through assignments and novations.

From a timing perspective, QIFs are authorised 24 hours after the fund documentation is filed with the Central Bank. There is no requirement to file draft documents with the Central Bank for its review.

Fund v Special Purpose Vehicle

There are a number of reasons why some promoters structure vehicles to invest in debt as an investment fund. One of the main reasons is that investors typically have more liquidity in a fund (having the ability not only to transfer their shares in the fund but also having the right to redeem their shares on request)4. Shares in an open-ended investment fund are redeemed at their net asset value ("NAV") and are usually issued on an ongoing basis at NAV or at an initial offer price in the case of new share classes. This is in contrast...

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