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CLO Dance Moves: The Dutch Irish Jump

Published 15. December 2020.

Today, we are starting a new blog series where our CLO subject matter experts highlight general CLO news and topics encountered while curating the Semeris Docs CLO Library.

The much publicized Dutch VAT end of exemption on CLO management fees finally closed off the last avenue for appeal in late November. From 1 January 2021, management fees will be subject to Dutch VAT at 21%.

Senior and Subordinated Fees are typically 50 bps (~75% of Dutch deals are 15bps senior / 35bps subordinated), so the net impact on a deal or a manager is about 10bps per annum, or ~1% on the equity return (assuming 10x leverage). That’s certainly enough money to be worth making a move for.

Who pays?

Generally speaking the issuer has to gross up for VAT on management fees, though, in some deals, managers have the discretion to decline the gross up. Thus ultimately, the equity investors pay if VAT is imposed.

Who is making the move?

Well there are ~20 Dutch deals in the 2019 vintage, about 25% of the deals done that year. Semeris data shows that the managers with the highest number of deals to move from The Netherlands are Alcentra, Ares, BNPP, Cairn, PGIM, Pinebridge and Tikehau (together 90% of Dutch deals).

Moving the jurisdiction of an SPV is like upgrading from Windows 7 to Windows 10; pretty involved, should mostly work okay, but there are lots of edge cases to consider.

These managers certainly have their work cut out for themselves in December in the run up to Christmas.

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Image credit: GerardM at nl.wikipedia, CC BY-SA 3.0