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FATCA - Action Points for CLO Directors

13 March 2014

FATCA - Action Points for CLO Directors

In recent client updates, FATCA Final Regulations – Update for Cayman and Irish CLO Issuers and Industry Advisory on the Role of the US FATCA Responsible Officer, Maples and Calder have provided an updated legal analysis for Cayman and Irish CLO Issuers with respect to the US Foreign Account Tax Compliance Act (“FATCA”).

The purpose of this update is to highlight the current action points that have been undertaken and are being considered by MaplesFS ("MFS”) for CLO Issuers administered by it in Cayman and Ireland.

As you will see from the Maples updates there are still some issues that require clarification, however, directors of CLO Issuers and other SPVs are now in a better position to finalise how FATCA may be implemented for their vehicles given that the revised regulations issued on 20 February 2014 deal with, among other things, the provisions relating to Limited Life Debt Investment Entities ("LLDIE”) .

What has MaplesFS been doing to date?

MFS has been communicating with all major trustees and collateral administrators in terms of reporting capabilities and action points with a view to bring consistency to the market.

We have also been reviewing the terms of the transaction documentation to form an initial understanding of how the entity may be classified under the FATCA regulations. This review is in an advanced stage and we anticipate reaching out to relevant investment managers shortly, if we have not done so already.

The MaplesFS FATCA task force has been working on broader FATCA analysis and issues with respect to CLOs, SPVs, investment funds, and other vehicle types. We have developed a suite of products that not only include registrations to obtain GIINs, but also classification and validation of accountholders FATCA status, remediation of non-compliant accounts and implementation of new on-boarding procedures and reporting.

What actions are MaplesFS currently undertaking?

We understand that there are still some points that need to be clarified with respect to the recent LLDIE provisions in the revised final regulations; however, based on our initial understanding we have reached the following initial classifications on how CLO deals are likely to be classified.

(1) CLO Issuers closed/closing on or after 18 January 2013

Background: Vehicles that issue securities after 18 January 2013 are not able to be classified as LLDIEs.

Classification: Reporting Model 1 FFI - Registered Deemed Compliant Financial Institution.

Actions: Registration for GIIN is required via IRS portal prior to 31 December 2014; although, earlier registration (including prior to 25 April 2014) can be obtained if required.

Documentation for these transactions should be reviewed to ensure that they permit FATCA reporting and the ability to bring the deal into compliance with FATCA.

(2) CLO Issuers closed between 1 March 2010 and 17 January 2013

Background: Vehicles that only issued securities in this period are likely to have language in their indenture either permitting the vehicle and/or the trustee to comply with FATCA or to make amendments to the indenture to enable compliance. Accordingly such vehicles are not likely to be able to be classified as LLDIEs.

Classification: Reporting Model 1 FFI - Registered Deemed Compliant Financial Institution.

Actions: Registration for GIIN is required via IRS portal prior to 31 December 2014. Register only when on a case by case basis it is confirmed that the vehicle will not qualify as an LLDIE.

Once the authority test is clearer (see FATCA Final Regulations – Update for Cayman and Irish CLO Issuers), documentation for these transactions should be reviewed to ensure that they permit FATCA reporting and the ability to bring the deal into compliance with FATCA.

(3) CLO Issuers that closed on or before 1 March 2010

Background: Vehicles that issued all of their securities prior to the introduction of FATCA are likely to fall with the definition of an LLDIE.

Classification: Non Reporting Model 1 FFI - Certified Deemed Compliant Financial Institution.

Actions: Certified Deemed Compliant vehicles – No registration and no reporting (self-certification by way of W-8BEN-E form from 1 July 2014).

The documentation must be carefully reviewed for each transaction to see if LLDIE criteria can be met, including, in particular, the "asset mix" criteria and the questions of whether the trustee or another person has the authority to bring the deal into compliance with FATCA.

Although it is not likely to affect the course of action, it is important to remember that the FATCA legislation is still to be enacted in both Cayman and Ireland and the guidance notes that will follow with this may provide further clarity and action points.

How can MaplesFS help?

Where applicable MaplesFS can register CLO vehicles for GIINs and assist with any reporting required to the Cayman or Irish tax authorities in conjunction with trustees and collateral administrators.


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