Central Bank Proposal Regarding Prohibition on Third Party Guarantees by Irish QIAIFs

Background

The Central Bank of Ireland’s (Central Bank) Alternative Investment Fund Rulebook (AIF Rulebook) currently contains a prohibition on Irish Qualifying Investor Alternative Investment Funds (QIAIFs) granting guarantees in favour of third parties. This has historically presented challenges in numerous fund finance transactions involving Irish funds.  While a workaround involving cascading security has been adopted by the market, in many cases this is not always possible.

Earlier this year, the Central Bank confirmed in a Q&A that it was possible for a QIAIF to provide a guarantee in respect of investments/or intermediate vehicles for such investments in which the QIAIF has a direct or indirect economic interest provided that certain conditions are satisfied.  The Central Bank has now sought to provide further clarity for borrowers and lenders by addressing this issue in proposed amendments to its AIF Rulebook contained in Consultation Paper 162 published earlier this week.  

What has the Central Bank proposed?

In a move taken as part of the alignment with the new EU loan origination framework, the Central Bank is now proposing the removal of the existing prohibition on QIAIFs providing third-party guarantees in its entirety. If implemented as proposed, this should allow QIAIFs to provide both upstream and downstream guarantees as part of fund finance transactions.

The Central Bank has acknowledged that “the provision of guarantees is standard market practice for fund financing arrangements such as bridge financing and financing where the fund is part of a wider fund family, and in the context of private equity investments where financing is provided to underlying portfolio companies / investment vehicles. Additionally, there are no such restrictions in the AIFMD’s new European loan origination rules.”

Conclusion

The proposed removal of the third-party guarantee restriction is a welcome development and should, if progressed[1], facilitate greater QIAIF involvement on both domestic and cross-jurisdictional fund finance transactions.

Questions?

For further information on this and any other aspects of Fund Finance please contact your usual Dillon Eustace contact or any of the Partners listed below.

Footnotes:
[1] As part of the consultation process, interested stakeholders have until 5 November 2025 to respond to Consultation Paper 162 via email to fundspolicy@centralbank.ie.