LegalizeCommission Implementing Regulation (EU) No 964/2014 of 11 September 2014 laying down rules for the application of Regulation (EU) No 1303/2013 of the European Parliament and of the Council as regards standard terms and conditions for financial instruments
| Structure of the financial instrument | The Renovation loan shall take the form of a loan fund to be set up by a financial intermediary with contributions from the programme and the financial intermediary itself to finance a portfolio of newly originated loans, to the exclusion of the refinancing of existing loans. The Renovation loan shall be made available, in the framework of the operation which is part of the priority axis defined in the programme funded by the ESIF and defined in the context of the ex-ante assessment required in Article 37 of Regulation (EU) No 1303/2013. |
| Aim of the instrument | The aim of the instrument is to offer preferential loans to natural and legal persons or independent professionals owning premises (apartment, social housing or individual household), as well as administrators or other legal bodies acting on behalf and for the benefit of the owners in order to undertake renovation works that are eligible for ESIF support. The ESIF programme contribution from the managing authority to a financial intermediary shall not crowd out financing available from other private or public investors. The ESIF programme shall provide funding to the financial intermediary in order to build up a portfolio of newly generated loans, and in parallel, participate in the losses/defaults and recoveries on the loans in this portfolio on a loan by loan basis and in the same proportion as the programme contribution in the instrument. In the case of fund of funds structure, the fund of funds shall transfer the contribution from the ESIF programme to the financial intermediary. In addition to the ESIF programme contribution, the fund of funds may provide its own resources which are combined with the financial intermediary resources. The fund of funds shall in this case take the pro-rata part of the risk sharing between the different contributions in the portfolio of loans. State aid rules have to be respected also in relation to such resources if they are public resources. |
| State aid implication | The Renovation Loan shall be designed as a State aid free instrument, i.e. market-conform remuneration for the financial intermediary, full pass-on of financial advantage by the financial intermediary to the final recipients, and the financing provided to the final recipients are under the applicable de minimis Regulation. (a) Aid at the level of the financial intermediary and the fund of funds is excluded when: (1) the financial intermediary and the managing authority or fund of funds bear at any time the losses and benefits in proportion to their contribution (pro-rata) and there is an economically significant participation of the financial intermediary in the Renovation loan instrument, and (2) The remuneration (i.e. management costs and/or fees) of the financial intermediary and the fund of funds reflects the current market remuneration in comparable situations, which is the case when the they have been selected through an open, transparent, non-discriminatory and objective selection procedure or if their remuneration is aligned with the Articles 12 and 13 of Delegated Regulation (EU) No 480/2014 and no other advantages are granted by the State. Where the fund of fund only transfers the ESIF contribution to the financial intermediary, and has a public interest mission, and has no commercial activity when implementing the measure, and is not co-investing with its own resources — therefore it is not considered a beneficiary of aid, — it is enough that the fund of fund is not overcompensated, and (3) The financial advantage of the programme public contribution to the instrument shall be fully passed on to the final recipients in the form of an interest rate reduction. When selecting the financial intermediary, the managing authority shall, in line with the Article 7(2) of Delegated Regulation (EU) No 480/2014, asses the pricing policy and the methodology to pass on the financial advantage to the final recipients. Where the financial intermediary does not pass on all the financial advantage to the final recipients, the undisbursed public contribution shall be transferred back to the managing authority. (b) Aid at the level of an entity acting on behalf of the owners (i.e. natural and legal persons, independent professionals owning premises, administrators, other legal bodies): Aid at the level of an entity acting on behalf of the owners is excluded when: (1) the entity does not benefit from any direct transfers of public support and (2) The entity transfers all the financial advantages of the programme public contribution to the final recipients (c) At the level of the owners without or with an economic activity (legal person or independent professionals, landlords and owners who install renewable energies, supplying part of the energy produced to the grid): Owners that are natural persons and which are not considered undertakings because they do not exercise an economic activity are not considered to be beneficiaries of State aid. Owners with an economic activity qualify as an ‘undertaking’ and are subject to State aid rules. In particular, this is the case if they are landlords (renting is an economic activity) and in the case of installing renewable energies, if part of the renewable energies produced is supplied to the grid (supplying energy to the grid is considered an economic activity). At the level of the owners with an economic activity, the aid shall comply with the de minimis rules. For each loan inserted within the portfolio regarding owners with an economic activity, the financial intermediary shall calculate the GGE by using the following calculation methodology: Calculation of the GGE = Nominal amount of the loan (EUR) × (Cost of funding (standard practice) + Cost of risk (standard practice) – Any fees charged by the managing authority on the programme contribution to the financial intermediary) × Weighted average life of the loan (Years) × Risk sharing rate. When the GGE is calculated with the above mentioned formula, for the purpose of the Renovation loan instrument, the requirement as foreseen in Article 4 of the de minimis Regulation [^E0009] is considered to be met. There is no minimum collateral requirement. A verification mechanism shall ensure that the GGE calculated with the above mentioned formula is not below than the GGE calculated following the Article 4(3)(c) of the de minimis Regulation. The total amount of aid calculated with the GGE cannot be above EUR 200 000 over a 3 years fiscal period taking into account the cumulation rule for final recipients in the de minimis Regulation. Technical support grant or another grant provided to the final recipient shall be cumulated with the calculated GGE. |
| Lending policy | (a) Disbursement from the managing authority or fund of funds to the financial intermediary: Following the signature of a funding agreement between the managing authority and the fund of funds or the financial intermediary, the relevant managing authority transfers public contributions from the programme to the fund of funds or the financial intermediary which places such contributions in a dedicated Renovation loan fund. The transfer shall be in tranches and respect the ceilings of Article 41 of Regulation (EU) No 1303/2013. The target lending volume and range of interest rate shall be confirmed within the ex-ante assessment in accordance with Article 37 of Regulation (EU) No 1303/2013 and shall be taken into account to determine the nature of the instrument (revolving or non-revolving instrument). The maximum risk-sharing of the financial instrument towards the final recipients shall be 85 % (i.e. at least 15 % shall be provided by the financial intermediary own funds). (b) Origination of a portfolio of new loans: The financial intermediary shall be required to originate within a pre-determined limited period of time a portfolio of new loans funded according to a risk-sharing rate agreed in the funding agreement (i.e. funded by (i) the programme contribution) (ii) the financial intermediary own fund). Eligible loans pre-defined according to eligibility criteria on a loan-by-loan basis and portfolio level shall be automatically included in the portfolio by way of submitting inclusion notices at least on a quarterly basis. The financial intermediary shall implement a consistent lending policy, especially regarding portfolio composition enabling a sound credit portfolio management and risk diversification, while aiming at reducing the market failure identified in the ex-ante assessment (referring to Article 37 of Regulation (EU) No 1303/2013) and while remaining aligned with the managing authority's financial interests and policy objectives. The identification, selection, due diligence, documentation and execution of the loans to final recipients shall be performed by the financial intermediary in accordance with its standard procedures and in accordance with the principles set out in the relevant funding agreement. (c) Re-use of resources paid back to financial instrument: Resources paid back to the financial instrument shall be either reused within the same financial instrument (revolving within the same financial instrument) or after being paid back to the managing authority or the fund of funds they shall be used in accordance with Article 44 of Regulation (EU) No 1303/2013. When revolving within the same financial instrument, as a matter of principles, the amounts that are attributable to the support of the ESIF and that are reimbursed and/or recovered by the financial intermediary from loans to final recipients within the time framework for investments shall be made available for new use within the same financial instrument. This revolving approach as referred at Articles 44 and 45 of Regulation (EU) No 1303/2013 shall be included in the funding agreement. Alternatively, if managing authority or fund of funds is directly repaid, the repayments shall occur regularly mirroring (i) principal repayments (on a pro rata basis on the basis of the risk sharing rate) (ii) any recovered amounts and losses deductions (according to the risk sharing rate), of the Renovation loans and (iii) any interest rate payments. These resources have to be used in accordance with Articles 44 and 45 of Regulation (EU) No 1303/2013. (d) Loss recoveries: The financial intermediary shall take recovery actions in relation to each defaulted loan co-financed by the Renovation loan in accordance with its internal guidelines and procedures. Amounts recovered by the financial intermediary (net of recovery and foreclosure costs, if any) shall be allocated pro-rata to the risk-sharing between the financial intermediary and the managing authority or the fund of funds. (e) Others: Interest and other gains generated by support from the ESI Funds to financial instrument shall be used in accordance with Article 43 of Regulation (EU) No 1303/2013. |
| Pricing policy | When proposing its pricing, the financial intermediary shall present a pricing policy and the methodology to ensure the full pass on of the financial advantage of the programme public contribution to the final recipients. The pricing policy and the methodology shall include the following elements: (1) the interest rate on the financial intermediary participation is set at market basis (i.e. according to the financial intermediary own policy), (2) the overall interest rate, to be charged on loans to the final recipients included in the portfolio, must be reduced proportionally to the allocation provided by the public contribution of the programme. This reduction shall take into account the fees that the managing authority might charge on the programme contribution. (3) The GGE calculation as presented in the State aid section shall be applied on each loan included in the Portfolio. (4) The pricing policy and the methodology shall remain constant during the eligibility period. |
| Programme contribution to financial instrument: amount and rate (product details) | The Renovation loan allocation to financial intermediaries and the minimum risk sharing rate shall be based on the ex-ante assessment findings justifying the support to the financial instrument (Article 37 of Regulation (EU) No 1303/2013) and taking into account the revolving approach of the instrument (if applicable). |
| Programme contribution to financial instrument (activities) | The loan portfolio funded by the Renovation loan instrument shall include newly originated loans to the final recipients, to the exclusion of the refinancing of existing loans. The eligibility criteria for inclusion in the portfolio are determined pursuant to the Union law (e.g. Regulation (EU) No 1303/2013 and Fund-specific rules), programme, national eligibility rules, and with the financial intermediary with the aim of reaching a large number of final recipients and achieving sufficient portfolio diversification and homogeneity in order to allow a reasonable estimation of the portfolio risk profile. These criteria shall reflect market conditions and practices in the relevant country or region. The financial intermediary shall be required to cooperate with regional or national bodies responsible for providing additional services in relation to the implementation of the renovation projects, which includes inter alia: consultancy services; verification and evaluation of project preparation, construction, technical supervision and procurement documents; evaluation of the compliance of renovation projects with Union and national law; the provision of grant support, State aid verification and registration. |
| Managing authority's liability | The managing authority's liability in relation to the financial instrument shall be as set out in Article 6 of Delegated Regulation (EU) No 480/2014. |
| Duration | The lending period of the financial instrument shall be set in order to ensure that the programme contribution as referred in Article 42 of Regulation (EU) No 1303/2013 is used for loans disbursed to final recipients no later than by 31 December 2023. |
| Lending and risk-sharing at financial intermediary level (alignment of interest) | Alignment of interest between the managing authority and the financial intermediary shall be achieved through: — Performance fees as provided by Articles 12 and 13 of Delegated Regulation (EU) No 480/2014. — The financial intermediary must contribute under local market conditions to the financing with at least 15 % of the total financing commitment for lending to final recipients (allowing determining the risk sharing rate). — The losses and recoveries shall impact pro-rata the financial intermediary and the managing authority within their respective liability. |
| Eligible financial intermediaries | Public and private bodies established in a Member State which shall be legally authorised to provide Renovation loans to persons owning premises and enterprises operating and owning premises in the jurisdiction of the programme which contributes to the financial instrument. Such bodies are financial institutions, and as appropriate microfinance institutions or any other institution authorised to provide loans. |
| Final recipient eligibility | The final recipients shall be eligible under Union and national law, the relevant priority, and funding agreement. Final recipients shall be natural or legal persons or independent professionals (economic activity), as well as administrators or other legal bodies acting on behalf and for the benefit of owners, owning premises (apartment or individual household) implementing energy efficiency or renewable energies measures that are eligible under Regulation (EU) No 1303/2013 and programme support. Within the eligibility rules under the programme and in line with national and Union rules the following examples of types of works may be eligible: — Technical support for the preparation of the part of the project relating to the energy efficiency or renewable energies measures. — Implementation costs of the part of the project relating to the energy efficiency or renewable energies measures. — Major repairs or replacement of heating and hot water systems: — Replacement or refitting of the heating substation or the boiler house (individual boilers) as well as hot water preparation systems. — Installation of balancing valves for stands. — Improvement of heat insulation for pipes. — Replacement of pipes and heating devices. — Installation of individual heating measurement system and thermostatic valves in apartments. — Replacement or refitting of hot water system pipes and installations. — Replacement or refitting of ventilation system. — Replacement of windows and entrance doors. — Roof insulation, including construction of a new sloping roof (excluding construction of premises in the attic). — Insulation of façade walls. — Insulation of cellar ceiling. — Installation of alternative energy sources (sun, wind, etc.) systems. — Major repairs or replacement of elevators by replacing them by more energy efficient elevators. — Replacement or repair of the common use engineering systems of the building (sewage system, electric installations, fire prevention installations, drinking water pipelines and installations ventilation system). Regarding the final recipients, the following eligibility criteria shall apply when lending to final recipient/owners with an economic activity under a legal entity (for example independent professionals). The eligibility criteria shall be met at the date of the signature of the loan: (a) shall be a micro, small and medium enterprise (SMEs (including individual entrepreneurs/self-employed persons) as defined in the Commission Recommendation 2003/361/EC. (b) shall not be a SME active in the sectors defined in points (a) — (f) of Article 1 of the de minimis Regulation. (c) shall not be part of on one or more restricted sectors [^E0010]. (d) shall not be a firm in difficulty as defined by State aid rules. (e) shall not be delinquent or in default in respect of any other loan or lease either granted by the financial intermediary or by another financial institution pursuant to checks made in accordance with the financial intermediary internal guidelines and standard credit policy. In addition, at the time of the investment and during the reimbursement of the loan, final recipients shall have a registered place of business in a Member State and the economic activity for which the loan was disbursed shall be located in the relevant Member State and Region/Jurisdiction of the ESIF programme. |
| Characteristics of the product for the final recipients | The financial intermediary shall deliver to final recipients new loans that contribute to the objective of the programme and that are co-financed by the programme under the Renovation loan, to the exclusion of the refinancing of existing loans. Their terms shall be grounded on the ex-ante assessment referred to in Article 37 of Regulation (EU) No 1303/2013. The Renovation loan maturity shall be for a period of up to 20 years. The maximum amount of each Renovation loan shall be fixed in relation with the ex-ante assessment findings justifying the programme contribution to the financial instrument and shall be fixed in the funding agreement between the managing authority, fund of funds and the financial intermediary. The maximum amount per loan per individual household shall not exceed EUR 75 000 . Loans for a building administrator are the sum of individual households of the building. The financial instrument may require from the final recipients or the administrators of common property acting on behalf of final recipients, an ‘own funds’ contribution. The Renovation loan shall be subject to annual fixed interest rate and shall include regular amortisation. The interest rate on the financial intermediary participation is set at market basis. The interest rate applicable to the relevant eligible loan included in the portfolio shall be reduced by the proportion of the programme public contribution in favour of the final recipients. An interest rate subsidy, as under Article 37(7) of Regulation (EU) No 1303/2013, may be awarded to low income households or vulnerable households [^E0011] The maximum interest rate subsidy shall correspond to the interest rate to be paid by the low income households or vulnerable households on the contribution of the financial intermediary in each loan. Certain technical support costs may be included in the financial instrument in the context of Article 37(7) of Regulation (EU) No 1303/2013. Support must be provided for project preparation only (preparatory studies and assisting in the preparation of the investment up to the investment decision). These technical support costs shall only be eligible in the event that a Renovation loan is signed between the financial intermediary and the final recipients and regardless of the entity that provides these services (e.g. regardless of whether the financial intermediary provides such services or they are obtained from another entity). |
| Reporting and targeted results | Financial intermediaries shall provide the managing authority or fund of funds with at least quarterly information in a standardised form and scope. The report shall include all the relevant elements for the managing authority to fulfil the conditions of Article 46 of Regulation (EU) No 1303/2013. Member States shall also fulfil their reporting obligations pursuant to the de minimis Regulation. Indicators must be aligned with the specific objectives of the relevant priority of the ESIF programme financing the financial instrument and on the expected results of the ex-ante assessment. They shall be measured and reported at least quarterly for the Renovation loan and aligned as a minimum with the regulation requirements. In addition to the common indicators of the priority axis of the ESIF programme (number of households with improved energy consumption classification, estimated annual decrease of GHG …) other indicators are: Number and volume of the loans Renovated family houses (square meters) Renovated apartments in buildings (square meters). Defaults (numbers and amounts) Resources repaid and gains Number and amounts of the technical support Number and amounts of interest rate subsidies |
| Evaluation of the economic benefit of the programme contribution | The financial intermediary shall reduce the overall effective interest rate (and collateral policy where appropriate) charged to the final recipients under each eligible loan included in the portfolio reflecting the favourable funding and risk sharing conditions of the Renovation loan. The entire financial advantage of the programme public contribution to the instrument shall be transferred to the final recipients in the form of an interest rate reduction. The financial intermediary shall monitor and report on the GGE for final recipients as referred in the State aid section. This principle shall be reflected in the funding agreement between the managing authority or fund of funds and the financial intermediary. |
Commission Regulation (EU) No 1407/2013 of 18 December 2013 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid (OJ L 352, 24.12.2013, p. 1).
The following economic sectors are together referred to as the ‘restricted sectors’. (a) illegal economic activities: any production, trade or other activity, which is illegal under the laws or regulations of the home jurisdiction for such production, trade or activity. (b) Tobacco and distilled alcoholic beverages. The production of and trade in tobacco and distilled alcoholic beverages and related products. (c) Production of and trade in weapons and ammunition: the financing of the production of and trade in weapons and ammunition of any kind. This restriction does not apply to the extent such activities are part of or accessory to explicit European Union policies. (d) Casinos. Casinos and equivalent enterprises. (e) IT sector restrictions. Research, development or technical applications relating to electronic data programs or solutions, which (i) aim specifically at: (a) supporting any activity included in the Restricted Sectors referred to a to d above; (b) internet gambling and online casinos; or (c) pornography, or which (ii) are intended to enable to illegally (a) enter into electronic data networks; or (b) download electronic data. (f) Life science sector restrictions. When providing support to the financing of the research, development or technical applications relating to: (i) human cloning for research or therapeutic purposes; or (ii) Genetically Modified Organisms (GMOs).
As defined in Commission Decision 2012/21/EU of 20 December 2011 as disadvantaged citizens or socially less advantaged groups who due to solvency constraints are unable to obtain housing at market conditions.
ANNEX V
CO-INVESTMENT FACILITY
Schematic representation of the Co-Investment Facility principle
Image omitted; see official source
Terms and conditions for the Co-Investment Facility
| Structure of the financial instrument | The Co-Investment Facility shall invest in the equity of SMEs with the contributions of the ESIF programme, the financial intermediary's own resources and private co-investors. The financial intermediary shall be a private entity that takes all investment and divestment decisions with the diligence of a professional manager in good faith. The financial intermediary shall be economically and legally independent from the managing authority and from fund of funds. Private co-investors shall be private bodies and shall be legally independent from the financial intermediary. The Co-Investment Facility shall be made available in the framework of an operation which is part of the priority axis defined in the programme funded by the ESI Funds and specified in the context of the ex ante assessment required under Article 37 of Regulation (EU) No 1303/2013. |
| Aims of the instrument | The aims of the instrument shall be to: (1) Invest in SMEs at seed, start-up, and expansion stage or for the realisation of new projects, penetration of new markets or new developments by existing enterprises through co-investment agreements (partnership approach) with co-investors on a deal by deal basis. Such investments shall be made within the scope of Commission Regulation (EU) No 651/2014 [^E0012]. (2) Provide more capital to increase investment volumes for SMEs. The aims are linked with the following conditions. The ESIF programme contribution to the Co-Investment Facility shall not crowd out financing available from other public or private investors. The Co-Investment Facility amount and rates shall be set to fill the equity gap identified in the ex ante assessment of the financial instrument in accordance with Article 37 of Regulation (EU) No 1303/2013. The ESIF programme shall provide funding to the Co-Investment Facility to build up a portfolio of investments in SMEs. The Co-Investment Facility shall participate with the financial intermediary and co-investors on a deal by deal basis. In the case of fund of funds structure, the fund of funds shall transfer the contribution from the ESIF programme to the financial intermediary in charge of the Co-Investment Facility. In addition to the ESIF programme contribution, the fund of funds may provide its own resources. State aid rules apply where the resources provided by the fund of funds are State resources. Where fund of funds resources are combined with other State resources Article 21 of Regulation (EU) No 651/2014 also apply. |
| State aid implication | The investment of the Co-Investment Facility shall be implemented as an instrument entailing State aid. It shall be considered compatible with the internal market and not requiring an ad hoc notification, provided conditions for compatibility under Article 21 of Regulation (EU) No 651/2014 are satisfied. The presence of State aid shall be assessed at the levels of the fund of funds, financial intermediary, the private investors and final recipients. In particular, on a deal by deal basis the aggregate private participation rate at the level of the SME shall reach at least the following thresholds: (a) 10 % for risk finance provided to the eligible undertakings prior to their first commercial sale on any market; (b) 40 % for risk finance provided to eligible undertakings operating in any market for less than 7 years following their first commercial sale; (c) 60 % for risk finance provided either to eligible undertakings requiring an initial risk finance investment which, based on a business plan prepared in view of entering a new product or geographic market, is higher than 50 % of their average annual turnover in the preceding 5 years, or for follow-on investments in eligible undertakings after the 7-year period of the first commercial sale. Private participation is here considered as investments made by private bodies. For the purposes of the Co-Investment Facility there is allowable aid at the level of the final recipients if: (a) there is allowable aid to private co-investors; (b) the financial intermediary is managed on a commercial basis and its financing decisions are independent and profit-driven; (c) the ceiling of private participation as set out in Article 21(10) of Regulation (EU) No 651/2014 are satisfied. The costs associated with the development of the investment projects, for the due diligence and for accompanying the final recipients shall be covered by the management costs and fees of the financial intermediary managing the Co-Investment Facility. Activities supported by the EAFRD, are subject to general State aid rules. |
| Investment policy | (a) Disbursement from the managing authority or from the fund of funds to the Co-Investment Facility Following the signature of a funding agreement between the managing authority or fund of funds and the financial intermediary, the relevant managing authority or fund of funds shall transfer the contributions from the programme to the Co-Investment Facility. The amount of the transfer shall cover the needs in terms of investments and management costs and fees. The transfer shall be carried out in tranches. The target investment volume shall be confirmed within the ex ante assessment carried out in accordance with Article 37 of Regulation (EU) No 1303/2013. The investment policy of the Co-Investment Facility shall include a clear exit strategy. That strategy shall be described in the funding agreement. (b) Disbursements from the Co-Investment Facility to the eligible SMEs The Co-Investment Facility shall co-invest, within a pre-determined limited period of time, with the financial intermediary and other private investors. On a deal by deal basis, the selected financial intermediary shall leverage additional finance from the financial intermediary or a vehicle affiliated to the financial intermediary for at least 1 % for the purpose of alignment of interest; and from co-investors, i.e. private investors. Investments decisions shall be profit-driven. In order to be considered profit driven the investment shall comply with the following conditions: (i) the financial intermediary is established in accordance with the applicable laws and provides for a due diligence process ensuring a commercially sound investment policy, including an appropriate risk diversification policy aimed at achieving economic viability and efficient scale in terms of size and territorial scope of its portfolio of investments; (ii) investment in eligible SMEs is based on a viable business plan, containing details of product, sales and profitability development, establishing the ex ante viability of the investment; (iii) a clear and realistic exit strategy exists for each investment. The financial Intermediary shall implement a consistent investment policy that complies with the applicable industry standards and that is aligned with the financial interests and policy objectives of the managing authority. (c) Disbursements from the Co-Investors to the eligible SMEs The financial intermediary shall identify, screen and assess potential co-investments in final recipients as well as any co-investors. The financial intermediary shall carry out a due diligence assessment on a deal by deal basis. The due diligence shall assess key aspects such as the business plan, the viability of the investment and the exit strategy. The business plan shall contain details on product, sales and profitability development. The private participation rate of eligible SMEs shall reach the minimum threshold set in Article 21 of Regulation (EU) No 651/2014. The co-investment agreement between the financial intermediary and co-investors shall establish the terms and conditions for investment in the final recipients and shall comply with Article 1(3) of Commission Implementing Regulation (EU) No 821/2014 [^E0013], where that Article is applicable. |
| Fund Contribution to financial instrument: amount and rate (product details) | The Co-Investment Facility shall provide capital to unlisted SMEs which fulfil at least one of the following conditions: (a) the SMEs have not been operating in any market; (b) the SMEs have been operating in any market for less than 7 years following their first commercial sale; (c) the SMEs require an initial risk finance investment which, based on a business plan prepared in view of entering a new product or geographic market, is higher than 50 % of their average annual turnover in the preceding 5 years; (d) the SMEs require follow-on investments in eligible undertakings, including after the 7-year period of the first commercial sale. The co-investment amount and rate per deal shall be determined by applying at least the following factors: (a) the size and focus of the Co-Investment Facility; (b) the participation of co-investors; (c) the expected catalytic effect of the Co-Investment Facility; remaining within the ceilings set out in Article 21(10) of Regulation (EU) No 651/2014. Amounts returned to the Co-Investment Facility from the investments within the timeframe for investments as set out in the funding agreement shall be re-used as provided for under Articles 44 and 45 of Regulation (EU) No 1303/2013. Differentiated treatment of investors operating under the market economy principle, aimed solely at asymmetric profit-sharing, shall be set in line with Article 43a of Regulation (EU) No 1303/2013 and Article 21(13)(b) of Regulation (EU) No 651/2014. |
| Programme contribution to financial instrument (activities) | The underlying transactions portfolio funded by the Co-Investment Facility shall include investments provided for the benefit of final recipients. The eligibility criteria for inclusion in the portfolio are determined in accordance with Union law, the ESIF programme, national eligibility rules, and with the financial intermediary. The financial intermediary shall have a reasonable estimation of the portfolio risk profile. The co-investment shall be made in final recipients for the required period before an exit in line with the investment policy. |
| Managing authority's liability | The managing authority's liability in relation to the financial instrument shall be as set out in Article 6 of Commission Delegated Regulation (EU) No 480/2014 [^E0014]. On liquidation of the Co-Investment Facility, the financial intermediary shall make a thorough assessment of the risk of claims against the Co-Investment Facility and ensure suitable sums are held in escrow accounts to meet such claims. |
| Duration | The Co-Investment Facility has an indicative duration of 10 years and may be extended with the consent of the managing authority. The investment period of the financial instrument shall be set to ensure that the programme contribution referred to in Article 42 of Regulation (EU) No 1303/2013 is used for investments to final recipients at the latest by 31 December 2023. Investments made after 31 December 2020 shall be assessed for compliance with the State aid rules which enter into force after that date. |
| Investment and risk-sharing at financial intermediary level (alignment of interest) | Alignment of interest between the managing authority and the financial intermediary shall be achieved through: — performance fees as provided for under Articles 12 and 13 of Delegated Regulation (EU) No 480/2014, — the remuneration of the financial intermediary that shall reflect the current market remuneration in comparable situations, including carried interest, if any, — a co-financing by the private co-investors that shall be at the minimum level in accordance with Article 21(10) of Regulation (EU) No 651/2014, — a co-financing with own resources by the financial intermediary of a minimum of 1 % on each deal under the same conditions as the Co-Investment Facility; additional co-investment by the financial intermediary shall be subject to the same conditions as the Co-Investment Facility, — the co-financing by other co-investors which shall be made on identical terms and conditions as those applicable to the Co-Investment Facility except if the ex ante assessment referred to in Article 37(2)(c) of Regulation (EU) No 1303/2013 estimates that an asymmetric profit-sharing shall be set between the public and private investors; such arrangements shall be in line with Article 21(13)(b) of Regulation (EU) No 651/2014, — the financial intermediary shall not engage in investment activities under a new investment vehicle targeting the same type of final recipients until either such a time as 75 % of the Co-Investment Facility commitments have been invested and the remaining 25 % are committed to be invested, or, the end of the investment period of the Co-Investment Facility, if earlier. Procedures aimed at avoiding conflict of interest between the financial intermediary, co-investors and investees shall be laid down before any investment made in a final recipient by the financial intermediary selected. |
| Eligible Financial Intermediary and Co-investors | The selected financial intermediary (fund manager of the Co-Investment Facility) shall be a private body established at international, national or regional levels in the Member States. Such body shall be legally authorised to provide equity to enterprises established in the Member States, such as financial institutions, or any other institution authorised to provide financial instruments. Private bodies shall be considered as private legal entities owned by private or public investors investing at their own risk and from their own resources. The managing authority and fund of funds shall comply with Union law when selecting financial intermediaries. The selection of financial intermediaries shall be open, transparent, proportionate and non-discriminatory, avoiding conflict of interests. The selection of the financial intermediaries shall establish appropriate risk-sharing arrangements in the case of differentiated treatment and determine possible carried interest. The financial intermediary shall specify, in the context of its selection, the conditions and criteria for the evaluation of co-investors. Those shall be understandable and available to potential co-investors. The financial intermediary shall demonstrate a non-discriminatory approach to find and invest with co-investors. The evaluation of co-investors may be controlled ex post. Financial intermediaries shall be managed on a commercial basis. This requirement is considered to be fulfilled if the conditions laid down in Article 21(15) of Regulation (EU) No 651/2014 are fulfilled. The Co-Investment Facility shall seek to mobilise Co-investors implementing best practice. The co-investors shall be long-term private investors investing own resources including venture capital funds, business angels, high net worth individuals, family offices, or companies with proven know-how and operational capacity. Co-investors shall be deemed to be any investors which, in the reasonable determination of the financial intermediary are investors operating in circumstances corresponding to the market economy investor principle in a free market economy, irrespective of their legal nature and ownership. Co-investors and the financial intermediary shall be independent from the final recipients of the investment except in the case of follow-on investment in final recipients that are already part of the Co-Investment Facility. |
| Final recipient eligibility | The final recipients shall be eligible under Union and national law, the relevant ESIF programme, funding agreement and with the condition referred to in Article 21(5) of Regulation (EU) No 651/2014. The following eligibility criteria shall be met by the final recipients at the date of the signature of the investment: (a) they shall be a micro, small and medium enterprise (‘SMEs’ (including individual entrepreneurs/self-employed persons) as defined in Commission Recommendation 2003/361/EC [^E0015]; (b) they shall not be excluded by Article 1(2) to (5) of the Regulation (EU) No 651/2014. (c) they shall not be part of one or more restricted sectors [^E0016]; (d) they shall not be an undertaking in difficulty as defined by Article 2(18) of the Regulation (EU) No 651/2014: (e) they shall not be in default in respect of any other loan or lease either granted by a financial intermediary or by another financial institution pursuant to checks made in accordance with the financial intermediary internal guidelines and standard credit policy; (f) they shall be established and operating in the relevant region/jurisdiction under the ESIF programme; (g) for reasons related to State aid considerations, investment shall not be made in listed companies (SMEs listed on an alternative trading platform shall not be considered listed for the purposes of this instrument); (h) they shall not receive investment as replacement capital (including management buyout or buy-in); (i) they shall comply with Articles 10 and 11 of Regulation (EU) No 508/2014 of the European Parliament and of the Council [^E0017], if they are SMEs active in the fisheries and aquaculture sector. |
| Characteristics of the product for the final recipients | The Co-Investment Facility amount and rates shall be aligned with the results of the ex ante assessment referred to in Article 37(2) of Regulation (EU) No 1303/2013 and shall comply with Regulation (EU) No 651/2014. The financial intermediary shall invest in SMEs in the form of equity or quasi-equity investment co-financed by the programme public contribution, the financial intermediary's own contributions and the co-investors contributions (the private contribution may be included for co-financing of the ESI Funds as a programme private contribution) under a co-investment agreement signed between the financial intermediary and the co-investors. Such investment of the Co-Investment Facility shall contribute to the ESIF programme objective. The total investment (i.e. one or more investment rounds including follow-on) combining public and private resources provided shall not exceed EUR 15 000 000 per eligible final recipient as set in Article 21(9) of Regulation (EU) No 651/2014. The total investment allowed per eligible final recipient shall be verified by including risk finance investments made under other risk finance measures. |
| Reporting and targeted results | The financial intermediary shall provide the managing authority or fund of funds with at least quarterly information in a standardised form and scope. The report shall include all the relevant elements for the managing authority to comply with Article 46 of Regulation (EU) No 1303/2013. Member States shall also fulfil their reporting and transparency obligations pursuant to Regulation (EU) No 651/2014. Indicators shall be aligned with the specific objectives of the relevant priority of the ESIF programme financing the financial instrument and with the expected results specified in the ex ante assessment. They shall be measured and reported at least quarterly for the Co-Investment Facility and aligned as a minimum with the requirements of Regulation (EU) No 1303/2013. In addition to the common indicators of the priority axis of the ESIF programme other indicators are: (a) amount invested into SMEs (with breakdown); (b) number of SMEs financed; (c) value of the investments financed; (d) gain or loss generated by the investment (if applicable); (e) number of employees at ‘investment’ and ‘number of employees’ at ‘exit’ in SMEs supported. |
| Evaluation of the economic benefit of the programme Contribution | The financial support of the programme public contribution to the instrument shall be transferred to the final recipients. This principle shall be reflected in the funding agreement between the managing authority or fund of funds and the financial intermediary. |
Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty (OJ L 187, 26.6.2014, p. 1).
Commission Implementing Regulation (EU) No 821/2014 of 28 July 2014 laying down rules for the application of Regulation (EU) No 1303/2013 of the European Parliament and of the Council as regards detailed arrangements for the transfer and management of programme contributions, the reporting on financial instruments, technical characteristics of information and communication measures for operations and the system to record and store data (OJ L 223, 29.7.2014, p. 7).
Commission Delegated Regulation (EU) No 480/2014 of 3 March 2014 supplementing Regulation (EU) No 1303/2013 of the European Parliament and of the Council laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund (OJ L 138, 13.5.2014, p. 5).
Commission Recommendation of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises (OJ L 124, 20.5.2003, p. 36).
Enterprise with less than 250 employees and having a turnover of less than EUR 50 million or total assets less than EUR 43 million; also not belonging to a group exceeding such thresholds. According to the Commission Recommendation, ‘an enterprise is considered to be any entity engaged in an economic activity, irrespective of its legal form.’.
The following economic sectors are together referred to as the ‘restricted sectors’: (a) illegal economic activities: any production, trade or other activity, which is illegal under the laws or regulations of the home jurisdiction for such production, trade or activity; (b) tobacco and distilled alcoholic beverages. The production of and trade in tobacco and distilled alcoholic beverages and related products; (c) production of and trade in weapons and ammunition: the financing of the production of and trade in weapons and ammunition of any kind. This restriction does not apply to the extent such activities are part of or accessory to explicit European Union policies; (d) casinos. Casinos and equivalent enterprises; (e) IT sector restrictions. Research, development or technical applications relating to electronic data programs or solutions, which (i) aim specifically at: (a) supporting any activity included in the Restricted Sectors referred to a to (d) above; (b) internet gambling and online casinos; or (c) pornography, or which (ii) are intended to enable to illegally (a) enter into electronic data networks; or (b) download electronic data; (f) life science sector restrictions. When providing support to the financing of the research, development or technical applications relating to: (i) human cloning for research or therapeutic purposes; or (ii) Genetically Modified Organisms (‘GMOs’).
[^E0017]: (6)
Regulation (EU) No 508/2014 of the European Parliament and of the Council of 15 May 2014 on the European Maritime and Fisheries Fund and repealing Council Regulations (EC) No 2328/2003, (EC) No 861/2006, (EC) No 1198/2006 and (EC) No 791/2007 and Regulation (EU) No 1255/2011 of the European Parliament and of the Council (OJ L 149, 20.5.2014, p. 1).
ANNEX VI
URBAN DEVELOPMENT FUND
Schematic representation of the Urban Development Fund principle
Image omitted; see official source
Terms and conditions for the Urban Development Fund
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