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Germany Relaxes Rules For Debt Funds-ISIN Update

May 22, 2015Bonds, Debt, International Securities Identification Numberjay

ISIN.net update courtesy of Alt Credit Intelligence

The German regulator has “opened the floodgates” for German debt funds after a major relaxation of its credit licensing laws.

Bafin guidance, published this week, allows for German funds to originate loans and restructure existing loans without obtaining a credit licence.

Previously any loan restructure required a credit licence under the Banking Act. It is a major relaxation of rules that lawyers say will benefit private debt funds operating in Germany.

In most cases the investments are made in US loans and debt, so lawyers say it could benefit US asset managers that manage portions of German debt funds as delegated managers or would like to enter the German market.

Lawyers say the previous rule had ”significantly restricted” the development of the debt funds market in Germany.

Bafin has now created an exemption that allows funds to restructure loans without a credit licence in certain cases.

“Bafin has opened the floodgates for German debt funds,” said one lawyer who did not wish to be named.

The regulator says it is now possible to grant loans for AIF accounts for which the German Investment Code (KAGB) specifies only a few or no product requirements at all.

“In view of the European legal situation, as well as in consideration of current discussions at Esma, BaFin has changed its administrative practice to the effect that the granting of loans as well as loan restructuring and prolongation by AIFs are to be seen as part of collective investment management and are therefore permissible to the extent that they are consistent with the provisions of the KAGB.

Bafin says AIF management companies should comply with certain minimum requirements for the granting of loans, the acquisition and restructuring/prolongation of unsecuritised loan receivables and the granting of shareholder loans for the account of the AIF.

Restrictions include only lending to non-consumer borrowers, lending through closed-ended AIFs, having appropriate underwriting and risk management policies, a limitation on leverage and minimisation of asset liability mismatches.

Tags: Alternative Investment Funds, German Investment Code, ISIN.net, KAGB, loan re-structure

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