SEC says special investment vehicles can buy up debts of firms

MANILA, Philippines — The Securities and Exchange Commission (SEC) allowed the creation of special investment vehicles that will help hard-hit companies manage their balance sheets amid the COVID-19 pandemic.

The SEC said on Tuesday it issued the rules for corporate debt vehicles (CDV), which will mainly invest in debt papers of medium to large companies.

This will help free up the balance sheets of the target companies struggling during the health crisis.

According to the SEC, the CDV is a closed-end investment company with any number of qualified buyers and/or non-qualified buyers not exceeding 19 persons in the Philippines during any 12-month period.

Investors, who not be given any voting rights, can participate in a CDV via an initial public offering while redemption is at maturity.

A CDV can make periodic distribution of income to investors on a pro-rata basis from the cash received by such CDV from its interest income after deduction of applicable taxes and expenses.

It may also pay out the value of the underlying investments of each share/unit in a class upon the maturity of the said underlying investments.

“CDVs can play a significant role in the survival and recovery of our economy from the impact of the COVID-19 pandemic by providing large corporations and medium-sized enterprises the necessary funding to meet their obligations, sustain their operations and preserve jobs,” SEC chair Emilio B. Aquino said in the statement.

The SEC said a CDV can invest in bonds, notes, commercial papers, debentures, and other evidence of indebtedness, whether secured or unsecured, of large corporations and medium-sized enterprises operating or earning income in the Philippines.

A CDV may likewise invest in corporate debts guaranteed by a large or medium-sized domestic corporation or by the Philippine government and/or its agencies or by multilateral agencies.

Large corporations are those with total assets of more than P350 million or total liabilities of more than P250 million, while medium-sized enterprises are those with more than P100 million to P350 million in total assets or P100 million to P250 million in total liabilities.

A CDV shall have a minimum subscribed and paid-up capital of P50 million.

If the CDV forms part of a group of investment companies to be created or already in existence to be managed or under management by the same fund manager with a track record of at least five years, the subscribed and paid-up capital shall not be lower than P1 million.