Cayman Islands: Cayman CLO Issuers: FATCA In Practice

With the recent passing of the 5 May 2014 registration deadline to be included in the first IRS GIIN list on 2 June 2014, and the 3 June 2014 registration deadline for the 1 July 2014 GIIN list imminent, this update outlines the practical implications for CLO issuers incorporated in the Cayman Islands ("CLO Issuers"), including: (i) the registration status of CLO 2.0 Issuers; (ii) the application of the LLDIE exemption to older CLO 1.0 Issuers; and (iii) steps being taken to prepare for FATCA reporting in the Cayman Islands in 2015, including a summary of the recent Trustee roundtable Maples and Calder and MaplesFS held with the major indenture trustees.

The Obligatory Acronyms

  1. "CLO 1.0" - pre-credit crisis CLO
  2. "CLO 2.0" - post-credit crisis CLO
  3. "FATCA" - US Foreign Account Tax Compliance Act
  4. "GIIN" - Global Intermediary Identification Number
  5. "IGA" - the Cayman Islands Model 1B (non-reciprocal) intergovernmental agreement with the US
  6. "LLDIE" - Limited Life Debt Investment Entity
  7. "TIA" - Cayman Islands Tax Information Authority
  8. "TIN" - Taxpayer Identification Number

A Regulatory Recap

The US Treasury and the IRS released the final FATCA regulations (the "FATCA Regulations")1 on 20 February 2014, which include the LLDIE provisions. Please click on the following links to see our prior client updates on the IGA and the FATCA Regulations:

FATCA and the Cayman IGA - Key Points for Cayman CLO Issuers

FATCA Final Regulations - Update for Cayman and Irish CLO Issuers

The US Treasury and IRS Announcement 2014-17 issued on 2 April 2014 split the former issuance date of the GIIN list into: (i) the first GIIN list of 2 June 2014, for which the registration deadline was extended to 5 May 2014; and (ii) the second GIIN list of 1 July 2014, for which the registration deadline is 3 June 2014. Importantly, this Announcement reconfirmed to withholding agents that:

  1. they will have an additional 90 days to verify that the GIIN of a payee (such as a CLO Issuer) appears on the GIIN list before they are deemed to have reason to know that the payee is not FATCA compliant; and
  2. withholding agents do not need to obtain a GIIN from a Reporting Model 1 FFI (as defined below) for payments made before 1 January 2015 (see "FATCA Reporting – Trustee Roundtable" below).

Cayman Islands Legislation Update

Although signed, the Cayman IGA has not come into force yet. The Cayman IGA will come into force once the Cayman Islands government completes its necessary internal procedures (which includes giving notice of such to the US).

The Cayman Islands government is working towards adopting supporting legislation in the first half of 2014 through: (i) an amendment to the existing Cayman Islands Tax Information Authority Law (primary legislation), which is expected to be adopted in May/June 2014; (ii) new Cayman Islands regulations ("Cayman FATCA Regulations"); and (iii) guidance notes to the Cayman FATCA Regulations (the "Guidance Notes"). The Cayman FATCA Regulations and Guidance Notes are expected to be published in August 2014 or soon thereafter, however draft Guidance Notes were issued to industry on 12 May 2014.

GIIN Registration of CLO 2.0 Issuers

By virtue of the LLDIE exemption "cut off" date of 17 January 2013, CLO 2.0 Issuers can be divided into two groups (see "The LLDIE Exemption" below for CLO 1.0 deals):

  1. Group 1 - CLOs that issued securities after 17 January 2013; and
  2. Group 2 - CLOs that issued all their securities before that date, but after 1 March 2010.

All Group 1 CLOs and those Group 2 CLOs that do not satisfy the LLDIE criteria (see below) are each classified as a Reporting Financial Institution, or to use the FATCA Regulations terminology, a "Reporting Model 1 FFI", and must therefore register to obtain a GIIN and report information on US reportable accounts ("US Reportable Accounts") to the TIA.

While a Reporting Model 1 FFI has until 31 December 2014 to obtain a GIIN, the application of the FATCA Regulations to CLO Issuers is sufficiently settled that there is no longer any reason not to proceed with the registration of applicable CLO 2.0 Issuers to secure a GIIN in advance of the initial FATCA withholding date of 1 July 2014. This position is reinforced by the concern that agent banks and other potential withholding agents may simply take the view that come 1 July 2014, if the CLO Issuer either: (i) does not have a GIIN (which would require registration by 3 June 2014); or (ii) is unable to certify itself as a certified deemed compliant entity (such as a CLO 1.0 Issuer that qualifies for the LLDIE exemption), then they withhold.

Following an analysis by the MaplesFS FATCA Task Force of its CLOs over the past 24 months, the applicable CLO Issuer directors at MaplesFS have registered over 125 Group 1 and Group 2 CLO 2.0 Issuers to date. As indicated in our previous updates, there is no requirement to appoint a distinct FATCA 'responsible officer' (an "FRO"). A press release issued by the Cayman Islands government on 12 March 2014 confirming the same can be viewed here.

The IRS GIIN Portal is designed to be used by both Model 2 IGA FFIs (that do require an FRO) and Reporting Model 1 FFIs. However, it is clear that the director of the Reporting Model 1 FFI who provides his or her details as part of the GIIN registration is only doing so to provide a point of contact for the relevant CLO Issuer and is not assuming any obligations of an FRO.

We expect that almost all Group 2 CLO 2.0 Issuers will be required to register for a GIIN by virtue of failing the 'Authority Test', which is one of the LLDIE exemption criteria described below. MaplesFS has undertaken a preliminary review of the deal documents for each Group 2 CLO 2.0 Issuer and is liaising with the relevant collateral manager and/or US counsel to ascertain whether or not the trustee (or some other person) has the authority to ensure compliance with FATCA. Generally, however, most indentures for Group 2 CLO Issuers contain provisions which give the applicable indenture trustee sufficient authority to amend the documents to ensure compliance with FATCA.

CLO 1.0 Issuers - The LLDIE Exemption

The LLDIE exemption is likely to allow "old and cold" deals, i.e. those CLO 1.0 Issuers2 that were set up pre-FATCA (essentially prior to March 2010), to avoid GIIN registration and reporting to the TIA. Such CLO 1.0 Issuers will be "certified deemed compliant" under the IGA and will be able to certify this fact through the new W-8BEN-E to agent banks and other paying agents.

LLDIE Criteria

There are six criteria required by the LLDIE provisions (listed (A) to (F)) which all must be met in order for the CLO to qualify as an LLDIE. The criteria are set out in full in Annex 1. However, the most critical criteria are:

(1) Asset Mix Test (criteria (D))

This criteria requires that: "substantially all of the assets of the [CLO] consist of debt instruments or interests therein".

The US Treasury has confirmed that:

  1. "substantially all" is intended to mean 80% or more by value;
  2. "interests therein" would include equity interests in wholly owned 'blocker' entities which in turn holds debt instruments as well as credit default and total return swaps which reference debt instruments; and
  3. cash may be treated as debt for the purposes of this test.

We, along with colleagues in the CLO industry, are taking the common sense position that this test should be applied to the relevant CLO Issuer at the point at which it is fully-ramped during the reinvestment period and not when the deal is being unwound. We have found that, for almost all CLO 1.0 Issuers, the collateral manager can provide confirmation to the directors of the CLO Issuer that this test is satisfied.

(2) Authority Test (criteria (F))

The LLDIE exemption is not available where the "[CLO]'s trustee or other fiduciary" or indeed "any other person" is authorised "to fulfil the obligations of a participating FFI".

The US Treasury has confirmed that the Authority Test is not intended to catch directors of the CLO Issuer, who could be said to be "authorised" in the general sense under the constitutional documents of the CLO Issuer.

We anticipate that the Guidance Notes accompanying the Cayman FATCA Legislation will permit CLO 1.0 Issuers to assume they satisfy the Authority Test unless they are specifically advised to the contrary by US counsel.

FATCA Reporting in the Cayman Islands

Reporting of information on US Reportable Accounts by a Reporting Model 1 FFI is not required until September 2015. However, as the information will first be submitted to the TIA in the Cayman Islands, it is likely that reporting to the TIA will need to occur towards the end of June 2015. It is expected that the information to be reported to the TIA annually will be straight-forward and consist of: (i) name and address of the CLO Issuer payer; (ii) name and address of the payee(s) (i.e. DTC); (iii) TIN of each payee; (iv) dates of payments; and (v) amounts paid. We understand that the information required is similar to that currently provided in respect of IRS Form 1099 filings. While a specific format for reporting information to the TIA is yet to be confirmed, we understand that a system is being built to accept electronic reporting. A global reporting format is expected to emerge following the release of the Common Reporting Standard in February 2014 by the OECD. The Cayman Islands is a member of the early adopters group committed to the principles of such standard.

Indenture Provisions

We are liaising with US counsel and trustees to incorporate suitable provisions in the indenture for new CLOs that ensure the CLO Issuer can: (i) obtain the information from the trustee/registrar it requires to comply with its FATCA reporting obligations; and (ii) pass such information on to any agents hired to assist with its reporting obligations. Once these provisions have been accepted as market standard, there may be scope for existing CLO 2.0 Issuers to update their indentures accordingly. The indentures for the vast majority of such CLO 2.0 Issuers will permit such an amendment without noteholder consent.

Trustee Roundtable

Maples and Calder and MaplesFS held a trustee roundtable call on 25 April 2014 with representatives from BNY Mellon, Citibank, Deutsche Bank, State Street, US Bank and Wells Fargo. During a discussion regarding all aspects of FATCA registration and reporting, the following important points were noted:

  1. Trustees will rely on existing W-8BEN forms through the end of 2014 and will not require replacement with the new W-8BEN-E (which, although released by the IRS, will not be considered 'live' by market participants until the accompanying IRS instructions are published).
  2. For each CLO that closes after 1 July 2014, Trustees will accept a W-8BEN-E form from the CLO Issuer confirming its status as a Reporting Model 1 FFI without a GIIN until the end of 2014.
  3. Trustees are building systems to facilitate the reporting of FATCA information, as the agent of the CLO Issuer, directly to the TIA.

The Way Forward

Given the acknowledged economic importance of the CLO market, and the significant efforts made by industry participants such as the LSTA, ISDA and SFIG, the practical application of FATCA is much clearer and better understood for CLOs than it is for almost all other asset classes. That said, certain aspects of the application of FATCA are still not free from doubt. In particular, some withholding agents have concerns about the transitional period of 1 July to 31 December 2014. In the context of a Model 1 Reporting FFI that has provided a W-8BEN-E (checking the Reporting Model 1 FFI box) but not registered for a GIIN, which is permissible, the withholding agents are concerned that if they fail to withhold in respect of such a CLO Issuer and that entity does not subsequently obtain a GIIN before 1 January 2015, the agent may be deemed to have breached FATCA. In recognition of these concerns, the IRS released Notice 2014-33 on 2 May 2014 to provide some transitional relief for withholding agents from IRS enforcement with respect to the implementation of FATCA.

The existence of such potential issues underlines the importance of continued dialogue between indenture trustees and CLO Issuers during the initial implementation of FATCA and in preparation for FATCA reporting, including the appointment of agents to facilitate reporting during the warehouse phase. With that aim in mind, Maples and Calder and MaplesFS will host a further Trustee roundtable to discuss these issues in the context of the recently released draft Guidance Notes.


LLDIE Criteria

  1. The FFI3 is an investment entity that issued one or more classes of debt or equity interests to investors pursuant to a trust indenture or similar agreement and all of such interests were issued on or before January 17, 2013.
  2. The FFI was in existence as of January 17, 2013, and has entered into a trust indenture or similar agreement that requires the FFI to pay to investors holding substantially all of the interests in the FFI, no later than a set date or period following the maturity of the last asset held by the FFI, all amounts that such investors are entitled to receive from the FFI.
  3. The FFI was formed and operated for the purpose of purchasing or acquiring specific types of debt instruments or interests therein and holding those assets subject to reinvestment only under prescribed circumstances to maturity.
  4. Substantially all of the assets of the FFI consist of debt instruments or interests therein.
  5. All payments made to the investors of the FFI (other than holders of a de minimis interest) are either cleared through a clearing organization or custodial institution that is a participating FFI, reporting Model 1 FFI, or U.S. financial institution or made through a transfer agent that is a participating FFI, reporting Model 1 FFI, or U.S.
  6. The FFI's trustee or fiduciary is not authorized through a fiduciary duty or otherwise to fulfill the obligations of a participating FFI under §1.1471-4 and no other person has the authority to fulfill the obligations of a participating FFI under §1.1471-4 on behalf of the FFI.


1 Maples and Calder is only qualified to advise on Cayman Islands, British Virgin Islands and Irish law and does not purport to offer any legal advice on FATCA or the FATCA Regulations, being US legislation. While the summaries in this article require reference to various provisions under FATCA, these are only included to highlight the applicable terms of the IGA.

2 The LLDIE exemption is also available to CDO 1.0 Issuers.

3 A CLO Issuer is an FFI (foreign financial institution).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Scott Macdonald
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions