Federal banking agencies last week extended by one year no-action relief under Regulation O for banks lending to investment fund-controlled companies under specific conditions. The relief was set to expire at the start of 2024 but has been pushed back to either Jan. 1, 2025, or the effective date of a final Federal Reserve rule revising Reg O.
The relief is being provided for “fund complex-controlled portfolio companies”—that is, companies whose voting shares are at least 10% owned by an investment fund and its sponsor—whose fund complex acquires enough shares in a bank to be considered an insider under Reg O. The agencies will not take action against banks extending credit to fund complex-controlled portfolio companies that would otherwise violate Reg O, provided that the fund complex controls less than 15% of the bank’s shares and that it does not have or seek to place representatives in the bank or to exercise influence over the bank. Extensions of credit to these companies must be on “substantially the same terms” as those for comparable unaffiliated parties. The relief applies only to portfolio companies, not the fund complexes.