DISTRESSED DEBT (RE)ACQUISITION

      OVERVIEW

      The Challenge

      With the pressure mounting on loans to portfolio companies, direct lending and P.E. managers are using this opportunity to repurchase loans (or any form of outstanding debt) at a discount to the original issue price.

      This can cause significant issues for investors (fortunately, no new ones!), such as:

      • U.S. withholding on interest payments
      • U.S. tax considerations on market discounts.

      It can also cause problems for portfolio companies (and again, none are new!), such as:

      • Cancellation of Debt Income (CODI)
      • Interest Deductibility under U.S. Hybrid Payment Rules.

      Solutions1

      The majority of the managers that DMS works with will have investors in two groups:

      • U.S. investors;
      • Foreign Treaty Eligible Investors.

      A solution that responds to these challenges is the creation of an Irish ICAV L-QIAIF:

      • This structure protects the acquirers of the distressed debt position by allowing them to be an investor in a vehicle that can access the Irish U.S. Double Taxation treaties;
      • This should work for investors from both the U.S. and Good Treaty Countries (such as Germany or the UK);
      • This should work for investors from both the U.S. and Good Treaty Countries (such as Germany or the UK);
      1. DMS is not a legal or tax firm, however it has formed partnerships with best-in-class law and tax firms, and is able to deliver its tailored solution in partnership with its preferred providers or one of its clients choosing.

      STRUCTURE

      “WE GOT YOU” SOLUTION

      DMS is acutely conscious that speed to market is key when setting up these structures.

      To that end, we are partnering with four of the leading law firms in Ireland to cover approximately 70% of the Irish funds market. We therefore aim to have a “ready to go” solution agreed with your preferred provider.

      Timing is of the essence, as we aim to have the platforms established when our clients inform us they are ready to go.

      “We got you, DMS can launch this in 2-4 weeks”

      The DMS platform is established with all necessary providers in place:

      AIF MANAGEMENT COMPANY INVESTMENT MANAGER (If not previously CBI Approved)
      Irish Legal (Tax extra if needed) Administrator & Transfer Agent
      Depositary & Custodian Depositary & Custodian
      Directors (at platform level – no delays Company Secretary & Registered Office
      Auditors Loan Administration
      SPV (S110) Servicing SPV (S110) Servicing

      If you require further information please contact your usual DMS representative or contact us below:

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