US Client Benefits from Jersey Expert Fund

VG worked with a US-based asset manager. The client wished to establish a Jersey-resident structure to issue collateralised loan obligations (CLOs) marketed to sophisticated international investors.

26 August 2022
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The Client

A US-based asset manager.

The Challenge

The client wished to establish a Jersey-resident structure to issue collateralised loan obligations (CLOs) marketed to sophisticated international investors. CLOs are securitisations of large, sub-investment grade corporate loans syndicated to a diverse investor base, which has the effect of reducing the cost of financing for corporations and providing loan market liquidity.

Pursuant to the Capital Requirements Regulation, which came into force in 2014, CLO managers were required to retain a 5% economic interest as “skin in the game” for the life of a securitisation transaction. This was in response to the economic crash of 2008-9 after which regulators concluded that the economic interests of managers and investors were not sufficiently aligned.

Solution

Alongside the issuer Special Purpose Vehicles, VG established a Jersey-based expert fund to invest in a US LLC which is responsible for originating and managing the CLOs in addition to retaining at least a 5% economic interest for the life of each transaction.

Results

The client favoured Jersey for this business due to its well-regulated, business friendly and politically stable environment. While US-based asset managers tend to use Cayman for CLOs and other debt capital markets transactions, Jersey remains a very attractive alternative with a strong expertise in this field.

 

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