See Full Document Text
16.7.2016 EN Official Journal of the European Union L 192/1
II
(Non-legislative acts)
REGULATIONS
COMMISSION IMPLEMENTING REGULATION (EU) 2016/1157
of 11 July 2016
amending Implementing Regulation (EU) No 964/2014 as regards standard terms and conditions
for financial instruments for a co-investment facility and for an urban development fund
THE EUROPEAN COMMISSION,
Having regard to the Treaty on the Functioning of the European Union,
Having regard to Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013
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 and repealing Council Regulation (EC) No 1083/2006 (1), and in
particular the second subparagraph of Article 38(3) thereof,
Whereas:
(1) To facilitate the use of financial instruments which are set up at national, regional, transnational or cross-border
level and managed by or under the responsibility of the managing authority in accordance with Article 38(3)(a)
of Regulation (EU) No 1303/2013, Commission Implementing Regulation (EU) No 964/2014 (2) established rules
on standard terms and conditions for three financial instruments: a portfolio risk sharing loan, a capped portfolio
guarantee and a renovation loan.
(2) To further facilitate the delivery of European Structural and Investment Funds to final recipients it is necessary to
provide for rules on standard terms and conditions for two further financial instruments: a Co-Investment Facility
and an Urban Development Fund.
(3) A Co-Investment Facility is an appropriate financial instrument for supporting entrepreneurial development of
small and medium-sized enterprises (SMEs) at different stages of development. The Co-Investment Facilities
should develop the local equity market and attract additional equity investments in SMEs through a partnership
approach with private investors.
(4) An Urban Development Fund is an appropriate financial instrument for addressing the high concentration of
economic, environmental and social problems of urban areas located in assisted areas identified in a regional aid
map in accordance with Articles 107(3)(a) and (c) of the Treaty. Urban Development Funds should be used to
mobilise co-investment from private investors to support implementation of urban development projects and
should aim at addressing market failures by supporting sustainable urban development strategies where there is
limited availability of funding or relatively low interest of investors in supporting urban development projects.
(5) Implementing Regulation (EU) No 964/2014 should therefore be amended accordingly.
(1) OJ L 347, 20.12.2013, p. 320.
(2) Commission 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
(OJ L 271, 12.9.2014, p. 16).L 192/2 EN Official Journal of the European Union 16.7.2016
(6) The measures provided for in this Regulation are in accordance with the opinion of the Coordination Committee
for the European Structural and Investment Funds,
HAS ADOPTED THIS REGULATION:
Article 1
Implementing Regulation (EU) No 964/2014 is amended as follows:
(1) Article 1 is replaced by the following:
‘Article 1
Subject matter
This Regulation lays down rules concerning the standard terms and conditions for the following financial
instruments:
(a) a portfolio risk sharing loan (“RS Loan”);
(b) a capped portfolio guarantee;
(c) a renovation loan;
(d) a co-investment facility;
(e) an Urban Development Fund.’;
(2) in Article 3 the title is replaced by the following:
‘Article 3
Grants under the standard terms and conditions’;
(3) the following Articles 8a and 8b are inserted:
‘Article 8a
Co-investment Facility
1. The Co-investment Facility shall take the form of an equity fund managed by a financial intermediary investing
contributions from the European Structural and Investment Funds (ESIF) programme into small and medium-sized
enterprises (SMEs). The Co-investment Facility shall attract additional investments in SMEs through a partnership
approach with private co-investors on a deal by deal basis.
2. The Co-investment Facility shall comply with the terms and conditions set out in Annex V.
Article 8b
Urban Development Fund
1. The Urban Development Fund shall take the form of a loan fund and shall be set up and managed by
a financial intermediary with contributions from the ESIF programme and a mobilisation of co-financing of at least
30 % from the financial intermediary and co-investors. The Urban Development Fund shall finance and support
implementation of urban development projects in assisted areas which are designated in a regional aid map for the
period 1 July 2014 to 31 December 2020 in accordance with points (a) and (c) of Article 107(3) of the Treaty, as
well as mobilise co-investment from private sources.
2. The Urban Development Fund shall comply with the terms and conditions set out in Annex VI.’;
(4) Annexes V and VI as set out in the Annex to this Regulation are added.16.7.2016 EN Official Journal of the European Union L 192/3
Article 2
This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the
European Union.
This Regulation shall be binding in its entirety and directly applicable in all Member States.
Done at Brussels, 11 July 2016.
For the Commission
The President
Jean-Claude JUNCKERL 192/4 EN Official Journal of the European Union 16.7.2016
ANNEX
‘ANNEX V
CO-INVESTMENT FACILITY
Schematic representation of the Co-Investment Facility principle
Terms and conditions for the Co-Investment Facility
Structure of the financial in The Co-Investment Facility shall invest in the equity of SMEs with the contributions
strument of the ESIF programme, the financial intermediary's own resources and private co-in
vestors.
The financial intermediary shall be a private entity that takes all investment and di
vestment decisions with the diligence of a professional manager in good faith. The
financial intermediary shall be economically and legally independent from the mana
ging 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(*).
(2) Provide more capital to increase investment volumes for SMEs.16.7.2016 EN Official Journal of the European Union L 192/5
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 ident
ified 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 contribu
tion from the ESIF programme to the financial intermediary in charge of the Co-In
vestment 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 lev
el 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 enter
ing a new product or geographic market, is higher than 50 % of their average an
nual 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 de
cisions 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 dili
gence 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.L 192/6 EN Official Journal of the European Union 16.7.2016
Investment policy (a) Disbursement from the managing authority or from the fund of funds to the Co-Invest
ment 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 strat
egy. 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 addit
ional 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 dri
ven 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 territo
rial scope of its portfolio of investments;
(ii) investment in eligible SMEs is based on a viable business plan, containing de
tails 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 finan
cial 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-invest
ments 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 dili
gence shall assess key aspects such as the business plan, the viability of the invest
ment 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(**), where that Article is applicable.16.7.2016 EN Official Journal of the European Union L 192/7
Fund Contribution to finan The Co-Investment Facility shall provide capital to unlisted SMEs which fulfil at least
cial instrument: amount and one of the following conditions:
rate (product details)
(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 pro
vided for under Articles 44 and 45 of Regulation (EU) No 1303/2013.
Preferential remuneration of private investors aimed solely at asymmetric profit-shar
ing shall be set in line with Article 44(1) of Regulation (EU) No 1303/2013 and
Article 21(13)(b) of Regulation (EU) No 651/2014.
Programme contribution to The underlying transactions portfolio funded by the Co-Investment Facility shall in
financial instrument (activ clude investments provided for the benefit of final recipients.
ities)
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 inter
mediary. 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(***).
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 en
sure 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 ex
tended with the consent of the managing authority.
The investment period of the financial instrument shall be set to ensure that the pro
gramme 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.L 192/8 EN Official Journal of the European Union 16.7.2016
Investment and risk-sharing Alignment of interest between the managing authority and the financial intermediary
at financial intermediary lev shall be achieved through:
el (alignment of interest)
— 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 ac
cordance 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; addit
ional co-investment by the financial intermediary shall be subject to the same con
ditions 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 esti
mates that an asymmetric profit-sharing shall be set between the public and pri
vate 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 in
vestment 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 invest
ment 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 Intermedi The selected financial intermediary (fund manager of the Co-Investment Facility) shall
ary and Co-investors 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 institu
tion 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 select
ing financial intermediaries. The selection of financial intermediaries shall be open,
transparent and non-discriminatory. The selection of the financial intermediaries shall
establish appropriate risk-sharing arrangements in the case of preferential remuner
ation 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 of
fices, or companies with proven know-how and operational capacity.16.7.2016 EN Official Journal of the European Union L 192/9
Co-investors shall be deemed to be any investors which, in the reasonable determina
tion of the financial intermediary are investors operating in circumstances corre
sponding to the market economy investor principle in a free market economy, irres
pective of their legal nature and ownership.
Co-investors and the financial intermediary shall be independent from the final recipi
ents 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 fi
nal 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(****);
(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(*****);
(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 stand
ard 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 con
sidered 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(******), if they are SMEs active in the
fisheries and aquaculture sector.
Characteristics of the product The Co-Investment Facility amount and rates shall be aligned with the results of the
for the final recipients 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 interme
diary'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 contribu
tion) 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) com
bining 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 to
tal investment allowed per eligible final recipient shall be verified by including risk fi
nance investments made under other risk finance measures.L 192/10 EN Official Journal of the European Union 16.7.2016
Reporting and targeted re The financial intermediary shall provide the managing authority or fund of funds
sults with at least quarterly information in a standardised form and scope.
The report shall include all the relevant elements for the managing authority to com
ply 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 quar
terly 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 prior
ity 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 The financial support of the programme public contribution to the instrument shall
benefit of the programme be transferred to the final recipients. This principle shall be reflected in the funding
Contribution agreement between the managing authority or fund of funds and the financial inter
mediary.
(*) 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 man
agement of programme contributions, the reporting on financial instruments, technical characteristics of information and com
munication 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 enter
prise 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 re
lated products;
(c) production of and trade in weapons and ammunition: the financing of the production of and trade in weapons and ammu
nition 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) inter
net 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 applica
tions relating to: (i) human cloning for research or therapeutic purposes; or (ii) Genetically Modified Organisms (“GMOs”).
(******) 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).16.7.2016 EN Official Journal of the European Union L 192/11
ANNEX VI
URBAN DEVELOPMENT FUND
Schematic representation of the Urban Development Fund principle
Terms and conditions for the Urban Development Fund
Structure of the financial in The Urban Development Fund (hereinafter referred to as “UDF”) shall take the form of
strument a loan fund to be set up and managed by a financial intermediary with contributions
from the programme, the financial intermediary and co-investors to finance newly
originated loans for urban development projects.
The UDF shall be made available in the framework of an operation which is part of
the priority axis defined in the programme co-funded by the European Structural and
Investment Fund (ESIF) and defined in the context of the ex ante assessment required
in (EU) No 1303/2013.
Aim of the instrument The aims of the instrument is to:
(1) Combine resources from the ESIF programme, the financial intermediary and co-
investors to support financing of urban development projects.
(2) Provide urban development projects located in assisted areas as designated in an
approved regional aid map for 1 July 2014 to 31 December 2020 in application
of points (a) and (c) of Article 107(3) of the Treaty with easier access to finance
offering projects funds at preferential conditions. Such investments shall be made
within the scope of Regulation (EU) No 651/2014.
The aims are linked with the following conditions.
The UDF instrument shall be part of the implementation of interventions envisaged
in an integrated approach for a sustainable urban development strategy.
The contribution from the ESIF programme to the financial intermediary shall not
crowd out financing available from other private or public investors.L 192/12 EN Official Journal of the European Union 16.7.2016
The ESIF programme shall provide funding to the financial intermediary in order to
build up a portfolio of loans to urban development projects. The programme shall
also participate in the losses and defaults, revenues and recoveries on the UDF loan in
this portfolio on a loan by loan basis.
The co-financing of the ESIF programme shall be provided by one of the following:
the programme contribution by the managing authority, the financial intermediary
contribution, and co-investors' contributions at the level of co-investments in the
fund, co-investments through loans into urban development projects and co-invest
ments by other co-investors.
In the case of fund of funds structure, the fund of funds shall transfer the contribu
tion 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's resources. In this
instance, the fund of funds shall take a part of the risk sharing between the contribu
tions in the portfolio of loans. Article 16 of Regulation (EU) No 651/2014 will have
to be applied if the resources provided by the fund of funds are State resources or are
combined with other State resources.
Urban development project The urban development project shall be part of the implementation of interventions
envisaged in an integrated approach for a sustainable urban development strategy and
which contributes to the achievement of the objectives defined therein.
In addition all urban development projects shall demonstrate the following para
meters:
Financial sustainability:
— urban development projects shall be based on a business model, estimating cash
flows and targeting potential private investors,
— urban development projects shall be structured in such a way that they generate
revenue or reduce expenditures, sufficient to repay the loan received from the
UDF and they shall be structured such that any State aid support is set at the
minimum amount necessary to enable the project to proceed so as not to distort
competition. The projects shall have an internal rate of return (IRR) which is not
sufficient to attract financing on a purely commercial basis.
Strategic alignment:
— urban development projects shall be part of an integrated sustainable urban devel
opment strategy and have the potential to attract additional funding from other
public and private investors,
— urban development projects shall comply with the objectives and interventions
envisaged by the ESIF programme and shall contribute to meet relevant output in
dicators of the ESIF programme,
— urban development projects shall be located in the relevant region/jurisdiction and
contribute to the achievement of objectives (including quantitative outputs) as sti
pulated in the ESIF programme.
The following investment priorities may be supported by the UDF:
— investment in low-carbon strategies for urban areas,
— investment to ensure disaster resilience,
— investment for adaption to climate change,16.7.2016 EN Official Journal of the European Union L 192/13
— investment to improve the urban environment, including regeneration of brown
field sites and reduction of air pollution,
— investment in sustainable urban mobility,
— investment support for self-employment and business creation,
— investment in infrastructure for public employment services,
— investment in the health and social sectors, be it in infrastructure, R & D or inno
vative services, which contribute to local development and to the transition from
institutional to community-based and primary forms of healthcare as well as to
enhance access to health and social services,
— investment in the physical and economic regeneration of deprived urban and rural
communities,
— investment towards the conservation, protection, promotion and development of
cultural heritage,
— investment in higher education, including collaboration with companies,
— investment in ICT development.
State aid implication The investment shall be considered compatible with the internal market and not re
quiring an ad hoc notification, provided it complies with Article 16 of Regulation
(EU) No 651/2014.
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 this regard the financial in
termediary and the fund of funds shall comply with the following conditions:
(a) the management costs and fees of the financial intermediary and the fund of
funds reflects the current market remuneration in comparable situations, which is
the case when the latter has been selected through an open, transparent, non-dis
criminatory call or if the remuneration is aligned with 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 re
sources — therefore it is not considered a beneficiary of aid — it is enough that
the fund of fund is not overcompensated;
(b) the private contribution to each urban development project is not lower than
30 % of the total financing provided in compliance with Article 16(6) of
Regulation (EU) No 651/2014;
(c) the UDF is managed on a commercial basis and shall ensure profit-driven finan
cing decisions.
Private contribution is here considered as investments made by private bodies.
The costs for the due diligence of the urban development projects shall be covered by
the management costs and fees of the financial intermediary managing the UDF.
Preferential remuneration (asymmetric conditions on risk-sharing arrangements) for
fund of funds, financial intermediary contribution and co- investors contributions at
fund level and project level in a form of loans, if any, shall be set in line with
Article 44(1) of Regulation (EU) No 1303/2013, points (b) and (c) of Article 16(8) of
Regulation (EU) No 651/2014, as further specified under the pricing policy.
No asymmetric conditions are possible for the other co-investors at project level since
their contributions are not invested in loans and outside UDF.L 192/14 EN Official Journal of the European Union 16.7.2016
Lending policy (a) Disbursement from the managing authority or from the fund of funds to the financial in
termediary
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 public contributions from the programme to the
financial intermediary which shall place such contributions in a dedicated UDF.
The transfer shall be carried out in tranches and shall 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 in
strument (revolving or non-revolving instrument).
(b) Origination of a portfolio of loans
The financial intermediary shall be required to originate within a pre-determined
limited period of time a portfolio of eligible loans for urban development projects
in addition to its current loan activities, partly funded from the disbursed funds
under the programme at the risk sharing rate agreed in the funding agreement.
The financial intermediary shall implement a consistent lending policy based on
an agreed investment strategy enabling sound credit portfolio management; while
complying with the applicable industry standards and while remaining appropri
ate to the managing authority's financial interests and policy objectives. The in
vestment strategy shall be defined within the integrated sustainable urban develop
ment strategy, target activity, target spatial areas and eligible expenditure.
The identification, selection, due diligence, documentation and execution of the
loans to final recipients shall be performed by the financial intermediary in ac
cordance with its standard procedures and in accordance with the principles set
out in the relevant funding agreement.
In case of co-investors providing loans into urban development projects a co-in
vestment agreement between the financial intermediary and co-investors provid
ing loan directly to an urban development project should be signed. Such
agreement defines the terms and conditions for investment in the final recipients
and is, if applicable, compliant with Article 1(3) of the Commission Implementing
Regulation (EU) No 821/2014(*). Such co-investment agreement shall specify the
conditions for risk-sharing arrangements if any.
(c) Re-use of resources paid back to financial instrument
Resources paid back to financial instrument shall be either reused within the same
financial instrument (revolving within the same financial instrument) or after
being paid back to managing authority or fund of funds they shall be used in ac
cordance with Article 44 and 45 of Regulation (EU) No 1303/2013.
This revolving approach as referred to in Articles 44 and 45 of Regulation (EU)
No 1303/2013 shall be included in the funding agreement.
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 reim
bursed and/or recovered by the financial intermediary from loans to final recipi
ents within the time framework for investments shall be made available for new
use within the same financial instrument.
Alternatively, if managing authority or fund of funds is directly repaid, the repay
ments shall occur regularly mirroring (i) principal repayments (ii) any recovered
amounts and losses deductions of the loans and (iii) any interest rate payments.
These resources have to be used in accordance with Articles 44 and 45 of the
Regulation (EU) No 1303/2013.16.7.2016 EN Official Journal of the European Union L 192/15
(d) Loss recoveries
The financial intermediary shall take recovery actions in relation to each defaulted
loan financed by the UDF in accordance with its internal guidelines and proce
dures.
Amounts recovered by the financial intermediary (net of recovery and foreclosure
costs, if any) shall be allocated between the financial intermediary, the managing
authority and the fund of funds.
(e) Interest and other gains
Interest and other gains generated by support from the ESI Funds to financial in
strument shall be used as referred in Article 43 of Regulation (EU)
No 1303/2013.
Pricing policy When proposing its pricing, the financial intermediary shall reduce the overall collat
eral requirement and the interest rate charged on each loan included in the Portfolio,
to the allocation provided by the public contribution of the programme and the risk-
sharing arrangements.
The pricing policy shall at least include the following elements:
(1) The interest rate on the financial intermediary participation shall be 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 eligible urban development
projects included in the portfolio, must be reduced proportionally to the alloca
tion provided by the public contribution of the programme. This reduction shall
take into account the fees that the managing authority might charge on the pro
gramme contribution and the risk-sharing arrangements.
(3) The pricing policy shall remain constant during the eligibility period.
Programme contribution to The actual risk sharing rate, programme public contribution, preferential remuner
financial instrument: amount ation and interest rate on loans shall be based on the ex ante assessment findings and
and rate (product details) shall be such as to ensure that the benefit to the final recipients complies with
Article 16(8)(b) of Regulation (EU) No 651/2014.
The size of the target portfolio of the UDF shall be established on the basis of the ex
ante assessment justifying the support to the financial instrument in accordance with
Article 37 of Regulation (EU) No 1303/2013 and shall take into account the revol
ving approach of the instrument, if applicable.
The UDF allocation and the risk-sharing rate shall be set to fill the gap identified in
the ex ante assessment, and shall comply with the conditions laid down in this Annex.
The minimum co-financing rate agreed with the financial intermediary shall be de
fined for each eligible loan included in the portfolio, corresponding to the maximum
portion of the eligible loan principal amount financed by the programme. The risk
sharing rate agreed with the financial intermediary shall determine the portion of the
losses which are to be shared between the financial intermediary, co-investors (at fund
level and at project level) and the programme contribution in absence of any other ar
rangement.
Detailed terms and conditions for financing to be provided by a UDF shall be deter
mined prior to making an investment for each urban development project on the ba
sis of financial forecasts prepared for the urban development project and verified by
the financial intermediary.L 192/16 EN Official Journal of the European Union 16.7.2016
Programme contribution to The underlying transactions portfolio funded by the UDF shall include loans for urban
financial instrument (activ development projects.
ities)
The eligibility criteria for inclusion in the portfolio are determined in accordance with
Union law, the ESIF programme, national eligibility rules, the investment strategy
(part of the integrated approach for sustainable urban development strategy) and with
the financial intermediary. The financial intermediary shall have a reasonable estima
tion of the portfolio risk profile.
The financial intermediary shall be required to identify, invest in and manage in a sus
tainable manner a portfolio of urban development projects based on an investment
strategy confirmed within the ex ante assessment. The financial intermediary shall
manage a portfolio of urban development projects that are part of the implementa
tion of interventions envisaged in an integrated approach for a sustainable urban de
velopment strategy.
For each urban development project, the financial intermediary shall provide at least
the following:
(a) a general description of the project and the project's timetable, including a descrip
tion of the co-financing partners and shareholders and the project's detailed finan
cing plan;
(b) a justification for selection for the contribution from the programme, including
an initial assessment of the viability of the project and the subsequent need for
UDF investment;
(c) an identification of the risks;
(d) the compliance with the project's objectives described in the relevant programme.
This means that selected urban development projects shall contribute to the
achievement of the programme objectives, including quantitative outputs, as sti
pulated in the relevant priority axes of the programme.
When implementing the portfolio, the financial intermediary shall in particular:
(a) identify, invest in and lead the negotiation and structuring of financial investments
in viable urban development projects which meet the requirements and criteria
applicable to the relevant programme;
(b) carry out both compliance and investment appraisal with the requirements of the
investment strategy. A viability test must demonstrate that the project would not
proceed without UDF investment;
(c) report on urban development projects in accordance with the Article 46 of Regu
lation (EU) No 1303/2013;
(d) ensure that at least 30 % of the total financing provided to an urban development
project is from private origin and that the best possible leverage of private re
sources is achieved.
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.
The losses covered are principal amounts due, payable and outstanding and standard
interest (but excluding late payment fees and any other costs and expenses.
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 the 31 December 2023.
Investments done after 31 December 2020 need to be checked for compliance with
State-aid rules, which will enter into force after that date.16.7.2016 EN Official Journal of the European Union L 192/17
Lending and risk-sharing at Alignment of interest between the managing authority, co-investors and the financial
financial intermediary level intermediary shall be achieved through:
(alignment of interest)
— performance fees as provided for under Articles 12 and 13 of the Delegated Regu
lation (EU) No 480/2014,
— the remuneration of the financial intermediary that shall reflect the current market
remuneration in comparable situations,
— the financial intermediary shall ensure the financing of at least 30 % of the total
financing commitment for lending to the urban development projects. Out of this
30 %, minimum 1 % of the total financing commitment of the UDF to each pro
ject shall be invested by the financial intermediary from its own resources on the
same terms and conditions as the programme contribution. The other minimum
29 % shall be provided by the financial intermediary, co-investors at fund level or
co-investors at project level through loans,
— the total amount of private co-financing shall be at least 30 % of the total finan
cing provided to an urban development project,
— co-financing by co-investors could be regarded as either national co-financing of
the ESI Fund as long as it doesn't come from final recipients' own resources
(where such co-financing is then invested in eligible project expenditures) or
complementary to the programme public contribution,
— the risk-sharing with the financial intermediary and with co-investors (at fund lev
el or at urban development project level) shall be made pro-rata as for the pro
gramme contribution except if the ex ante assessment as referred in Article 37(2)(c)
of Regulation (EU) No 1303/2013 estimates that a preferential remuneration is
needed in the form of an asymmetric risk-sharing set between the public and pri
vate co-investors. Such arrangements shall be in line with Article 16(8)(b) and c of
Regulation (EU) No 651/2014 and included in the co-investment agreement be
tween the parties. Such arrangements do not apply to the 1 % invested by the
financial intermediary from its own resources as required here above for the pur
pose of alignment of interest.
Eligible Financial Intermedi The selected financial intermediary shall be a public or private body established in
aries a Member State and shall be legally authorised to provide loans to urban development
projects located in the jurisdiction of the programme which contributes to the finan
cial instrument. The eligible financial intermediary shall also demonstrate capacity to
manage a UDF and monitor the portfolio of urban development projects. It concerns
the elements required at the Article 7 of Delegated Regulation (EU) No 480/2014. Eli
gible financial intermediary shall also demonstrate experience in the relevant targeted
market and a suitable track record in the management of equivalent or similar pro
jects or financial vehicles investing in similar projects to those envisaged by the UDF,
including experience in the use of ESIF.
The financial intermediary shall be appropriately regulated by the relevant national
financial services regulatory body and it shall follow professional fund management
best practice.
The financial intermediary shall be managed on commercial basis. This requirement
shall be considered to be fulfilled if the conditions set in Article 16(9) of Regulation
(EU) No 651/2014 are complied with.
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 legal structure of the UDF shall allow additional funding to leverage programme
contribution from other investors into urban development projects.L 192/18 EN Official Journal of the European Union 16.7.2016
The managing authority and fund of funds shall comply with Union law when select
ing financial intermediaries. The selection of financial intermediaries shall be open,
transparent and non-discriminatory. The selection of the financial intermediaries shall
aim at establishing appropriate risk-sharing arrangements in case of preferential
remuneration.
The selection process of the financial intermediary shall evaluate the UDF investment
strategy, decision making and overall governance approach, management capacity and
contribution by the financial intermediary on its own resources to the UDF. Within
the selection process, one of the eligibility criteria for the selection of the financial in
termediary shall be its capacity to propose and develop a portfolio of urban develop
ment projects to be financed, taking into account the most competitive pricing policy
proposed by the financial intermediary participating in the selection process.
The financial intermediary shall be responsible for the identification and evaluation of
urban development projects. Once selected, the financial intermediary shall manage
an urban development project pipeline.
The pipeline of urban development projects shall contain projects that the financial
intermediary undertakes to finance, based upon the information available at that time.
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.
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.
Final recipients eligibility The final recipients shall be eligible under Union and national law, the relevant ESIF
programme, funding agreement and with the condition referred in Article 16 of
Regulation (EU) No 651/2014. The following eligibility criteria shall be met by the fi
nal recipients at the date of the signature of the loan:
(a) they shall be urban development actors, meaning undertakings with a legal status
allowing for taking debts and implementing urban development projects, with
various ownership structures, for example combining private and public capital;
(b) they shall be active partners for regional and local authorities stimulating urban
development by investing in urban development project. Final recipients must
have suitable legal interest in the asset which the investment is made;
(c) they shall not be excluded by Article 1(2) to (5) of the Regulation (EU)
No 651/2014;
(d) they shall not be part of one or more restricted sectors(**);
(e) they shall not be a company in difficulty as defined by Article 2(18) of the Regu
lation (EU) No 651/2014;
(f) they 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;
(g) they shall invest in urban development projects that are implemented in assisted
areas as designated in an approved regional aid map for the period 1.7.2014-
31.12.2020 in application of Article 107(3)(a) and (c) of the Treaty.16.7.2016 EN Official Journal of the European Union L 192/19
In addition, at the time of the investment and during the reimbursement of the loan,
final recipients shall have a registered place in a Member State and the activity for
which the loan was disbursed shall be located in the relevant Member State and re
gion/jurisdiction of the ESIF programme.
Characteristics of the product The UDF shall deliver to final recipients the loans that contribute to the objective of
for the final recipients the programme and that are co-financed by the programme. The UDF amount and
rates shall be aligned with the results of the ex ante assessment referred in Article 37(2)
Regulation (EU) No 1303/2013 and shall comply with Regulation (EU) No 651/2014.
The loans shall be used exclusively for the following permitted purposes:
(a) investments in tangible and in intangible assets;
(b) working capital related to development or expansion activities that are ancillary
(and linked) to activities referred to in (a) above (which ancillary nature shall be
evidenced, inter alia, by the business plan of the urban development project and
the amount of the financing).
The following eligibility criteria shall be met at all times by UDF loans included in the
portfolio:
(c) loans shall be newly originated, to the exclusion of the refinancing of existing
loans or financing of completed projects;
(d) the total investment amount of the UDF for the urban development project shall
not exceed EUR 20 000 000 as set out in Article 16(3) of Regulation (EU)
No 651/2014;
(e) loans shall provide financing for one or more of the permitted purposes in EUR
and/or national currency in the relevant jurisdiction and/or, as the case may be, in
any other currency;
(f) loans shall not be in the form of mezzanine loans, subordinated debt or quasi
equity;
(g) loans shall not be in the form of revolving credit lines;
(h) loans shall have a repayment schedule: including regular amortising and/or bullet
payments;
(i) loans shall not finance pure financial activities and shall not finance the provision
of consumer finance;
(j) maturity: loans shall have the minimum maturity of 12 months (including the rel
evant grace period, if any) and a maximum maturity of up to 360 months.
Reporting and targeted re The financial intermediary shall provide the managing authority or fund of funds
sults with at least quarterly information in a standardised form and scope.
The report shall include all the relevant elements for the managing authority to com
ply 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.L 192/20 EN Official Journal of the European Union 16.7.2016
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 quar
terly for the UDF 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) numbers of loans/projects financed;
(b) amounts of loans financed;
(c) defaults (numbers and amounts);
(d) resources repaid and gains.
Evaluation of the economic The financial advantage of the programme's public contribution to the instrument
benefit of the programme shall be transferred to the final recipients taking into consideration, if applicable, the
contribution favourable funding conditions provided by the programme's public contribution to
the UDF.
The financial intermediary shall reduce the overall effective interest rate and collateral
policy, where appropriate, charged to the final recipients under each eligible loan in
cluded in the portfolio reflecting the favourable funding conditions of the programme
contribution to the UDF.
This principle shall be reflected in the funding agreement between the managing
authority or fund of funds and the financial intermediary.
(*) 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 manage
ment of programme contributions, the reporting on financial instruments, technical characteristics of information and communica
tion measures for operations and the system to record and store data (OJ L 223, 29.7.2014, p. 7).
(**) 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 ammuni
tion 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 gam
bling and online casinos; or (c) pornography, or which (ii) are intended to enable to illegally (a) enter into electronic data net
works; 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”).’