ANNEX II: TO CALL FOR EXPRESSION OF INTEREST TO SELECT FINANCIAL INTERMEDIARIES UNDER
CYPEF PRSL
Indicative PRSL Term Sheet
Important Disclaimer
This summary term sheet is for information purposes only. This document is an outline of the principal
indicative terms and conditions for the product described herein, which are subject to change and
non-exhaustive.
This document is intended to provide a basis for discussions and does not constitute a
recommendation, a solicitation, an offer or a binding commitment – either implicit or explicit – on the
part of the European Investment Fund (EIF) (the “Relevant Entity”) and/or any other person to enter
into one or more transaction(s). Any finance commitment by the Relevant Entity can only be made,
inter alia, after appropriate approval, conclusion of legal due diligence and finalisation of the required
legal documentation. The Relevant Entity does not act as adviser to you or owe you any fiduciary duty.
The Relevant Entity does not make any representations or warranties (whether explicitly or implicitly)
with respect to the information contained in this document.
Portfolio Risk Sharing Loan
1
Structure
The PRSL shall be available to financial intermediaries (“FIs”) at low interest rates enabling them to
pass on their reduced funding costs directly to the SMEs. The risk sharing element means that FIs are
able to share any risk on the SME loans by the risk sharing rate as described below.
The origination, due diligence, documentation and servicing of the eligible SME loans shall be
performed by the FI in accordance with its standard origination and servicing procedures. In this
context, the FI shall have the sole direct client credit relationship with each SME.
Eligible SME loans (according to pre-defined eligibility criteria on a loan-by-loan and portfolio level)
will be automatically included in the portfolio, by way of submitting inclusion notices.
In the situation of ex-ante financing, the CYPEF funds are provided to the FI in advance and in
tranches, on the basis of actual utilisation. For as long as the CYPEF funds remain undrawn to eligible
SMEs, those funds will be remunerated on the basis of a commercial deposit rate (calculated on the
average outstanding amount of the quarter).
Once funds are drawn to SMEs the CYPEF funds shall be remunerated on the basis of the SME pricing
policy applied by CYPEF (based on the average outstanding SME portfolio amount of the quarter).
The interest rate of the SME loan shall be the weighted average of (i) the rate charged by the FI, in
accordance to its submitted offer, and (ii) the interest rate required by the CYPEF, which is set at 2.5%
- unless further notified by EIF.
The FI shall repay the PRSL to CYPEF on a periodic (normally quarterly) basis.
A FI may not become a CYPEF repeat intermediary unless an amount equivalent to 75% of previous
CYPEF commitments to the FI have been committed to SMEs.
The PRSL is subject to EIB and national rules and requirements, a number of which are being
indicatively presented in this Annex II. It should be noted however that more detailed information on
actions necessary to ensure compliance of operations linked to the PRSL with all applicable rules and
requirements (e.g. retention of documents, State aid rules, etc) will be provided to and discussed with
the selected FIs during the contractual negotiations process.
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RiskSharing
Rate
Matched funding by
the Financial
Intermediary (1-Co
financing rate)
FI
‘Borrower’
Cyprus
Entrepreu
nership
Fund
PRSL (*)
Covered Losses
New Portfolio of
Underlying Transactions
Risk retained
by the
‘Lender’
Risk retained
by the
‘Borrower’
Funding
of the
Portfolio
Portfolio
Losses
(*) funding according to the Co-financing rate
2
Summary description of CYPEF PRSL
Indicative Summary of Transaction Terms
When used in this section, the term “EIF” means EIF representing the Republic of Cyprus and acting
on its behalf through CYPEF.
Structure
Funded financial instrument with a risk sharing element.
Governing law and
language
The terms of the funded financial instrument shall be in the English
language and shall be governed by the laws of England.
Form
Operational agreement for co-funding of an SME loan portfolio and risk
sharing thereof.
Limitation of liability
Liability of EIF vis-à-vis the FI will be limited to the outstanding amount to
such FI under the relevant Operational Agreement.
Operational Agreement
Agreement entered into between EIF and the FI under CYPEF PRSL.
Co-financing rate
The FI shall provide co-financing of 50% on a loan by loan basis.
Risk sharing
EIF and the FI will share the risk on each SME loan financed by the facility
on a pari passu basis (i.e. EIF will cover 50% of the losses on an eligible SME
loan).
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State aid compliance
The financial instrument, due to the favourable pricing charged on the loan
portion supported by CYPEF funds (see section “Pricing and Collateral
Requirements” below), is being implemented within the scope of the de
minimis regulations.
In this respect, all CYPEF PRSL loans granted need to take into
consideration the criteria, restrictions and monitoring obligations (including
but not limited to the responsibility for calculating and communicating to
the SMEs the Gross Grant Equivalent (“GGE”)) set by the following
regulations, as they are amended or replaced from time to time:
a) Commission Regulation (EU) No 1407/2013 of 18 December 2013 on
the application of Articles 107 and 108 of the Treaty on the
Functioning of the European Union to de minimis aid (Official
Journal of the European Union L 352 24.12.2013 L 352 p.1) and;
b) Commission Regulation (EU) No 1408/2013 of 18 December 2013 on
the application of Articles 107 and 108 of the Treaty on the
Functioning of the European Union to de minimis aid in the
agriculture sector (Official Journal of the European Union L 352
24.12.2013 L 352 p.9),
c) De Minimis regulation linked to aid in the fisheries sector – All
relevant info to be communicated at a later stage as such regulation
is currently being finalised.
Attention is also explicitly drawn to Cumulation provisions and
requirements described in Articles 5 of the abovementioned Regulations.
Additionally, all CYPEF PRSL loans, prior to their granting, need to comply
with the procedure set out in the national legislation concerning de
minimis aid, namely the State Aid Control Regulations of 2009 and 2012
(Public Instrument 364/2009 and Public Instrument 501/2012) which are
available in an unofficial consolidated form at the official website of the
Commissioner for State Aid Control – click here or use the following link:
http://www.publicaid.gov.cy/publicaid/publicaid.nsf/csac10_gr/csac10_gr?O
penDocument.
Eligible SMEs and
transactions
1
Eligible entities are autonomous small and medium sized enterprises
(“SMEs”)1 with fewer than 250 employees2 at the time of the signature of
the loan agreement.
In general, SMEs are considered autonomous if:
I.
less than 25% of their equity or equivalent is owned by another enterprise or individual; or
II.
25% or more of the equity or equivalent is owned by another enterprise or individual, but the group employs fewer
than 250 persons on a consolidated basis*; or
III.
25% or more of the equity or equivalent is owned by a public body, AND the public body is a local authority with
an annual budget of less than EUR 10m and in an area of the authority’s administration which has fewer than 5000
inhabitants; or
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Eligible SMEs must be registered3, established and operating in Cyprus. For
the avoidance of doubt, self-employed entrepreneurs registered under the
Cyprus Social Insurance Scheme will be also allowed to benefit from CYPEF
financing. Any economic activity to be financed under the CYPEF needs to
be performed within the area effectively controlled by the Government of
the Republic of Cyprus4.
Financial holding companies, whose sole economic activity is to hold and
to manage portfolio of equity participations and/or investments in other
companies are not eligible for CYPEF financing.
The final beneficiary (i.e. SME) shall not be subject to collective insolvency
proceedings nor fulfil the criteria under its domestic law for being placed in
collective insolvency proceedings at the request of its creditors.
EIB excluded sectors
SMEs active in any sectors are eligible for inclusion in the PRSL portfolio
except where an SME has the majority of its business (measured on the
basis of annual turnover) in one or more of the following sectors/activities:
a)
b)
c)
IV.
production of weapons and ammunition, arms, military or
police equipment or infrastructures, and equipment or
infrastructure which result in limiting people’s individual rights
and freedom (i.e. prisons, detention centres of any form) or in
violation of human rights;
gambling and related equipment;
tobacco manufacturing, processing, or distribution;
up to 50% of the equity or equivalent is owned by companies or institutions in line with the exceptions detailed in
Annex of the Commission recommendation 2003/361/EC of 6 May 2003, article 3, paragraph 2 (i.e. venture capital
funds or “business angels”, provided that they invest less than EUR 1.25m in the same company, universities or nonprofit research centres, institutional investors (e.g. pension funds, insurances) including regional development
funds).
*To calculate the number of employees in case of non-autonomous companies, the number of employees of the upstream
or downstream company has to be added. In case of partner enterprises (a company holds between 25% and 50% of
another company’s equity): the number of employees of the SME financed is to be aggregated with the number of
employees of the partner enterprise by applying the percentage of participation in the latter. In case of linked enterprises (a
company holds more than 50% of another company’s equity): the number of employees of the SME financed is to be
aggregated with the number of employees of the linked enterprise by adding the total number of employees of the latter.
The aggregation has to comprise all partner enterprises situated immediately upstream or downstream of the SME financed,
and all linked enterprises.
2Full time equivalent.
3Companies shall be registered in accordance with the provisions of the Company Law in force in Cyprus and according to
the requirements of the Registrar of companies and Official Receiver.
4It is noted that, according to the Protocol 10 of the Accession Treaty of the Czech Republic, the Republic of Estonia, the
Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the
Republic of Poland, the Republic of Slovenia and the Slovak Republic to the European Union, the application of Community
Acquis shall be suspended in those areas of the Republic of Cyprus in which the Government of the Republic of Cyprus does
not exercise effective control. In addition, according to the Protocol 3 of the above mentioned Treaty, the Sovereign Base
Areas of the United Kingdom of Great Britain and Northern Ireland, in Cyprus, are not included in the eligible areas
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d)
e)
f)
g)
h)
activities involving live animals for experimental and scientific
purposes insofar as compliance with the "Council of Europe’s
Convention for the Protection of Vertebrate Animals used for
Experimental and other Scientific Purposes" cannot be
guaranteed;
activities which give rise to environmental impacts that are not
largely mitigated and/or compensated;
sectors considered ethically or morally controversial or which
are forbidden by national law, e.g. research on human cloning;
pure real estate development activity;
pure financial activities e.g. trading in financial instruments.
Additional excluded sectors -De minimis excluded sectors
For loans granted within the context of Commission Regulation (EU) No
1407/2013 of 18 December 2013, sectors and/or activities stipulated in
Article 1 of such regulation are not eligible.
For loans granted within the context of Commission Regulation (EU) No
1408/2013 of 18 December 2013, to undertakings active in the primary
production of agricultural products, sectors and/or activities stipulated in
Article 1 of such regulation are not eligible.
Eligible purposes and
forms of SME financing
The financing of all investments and expenditure incurred in the context of
the development of SMEs shall be eligible, except as set out below:
a. financing to SMEs under purely financial transactions;
b. financing to SMEs for real estate development including financing
the purchase, (or construction or renovation) of real estate with
the purpose of selling or renting the building to a third party (i.e.
not part of the same group of companies)3;
c. the financing of consumer finance;
d. the financing of business taxes such as Value Added Tax (VAT)
shall only be eligible if they are non-recoverable;
e. the financing of the purchase of land4;
f. the financing costs related to the acquisition of licences, quotas,
production rights and other rights awarded by public bodies;
g. the financing of the acquisition of enterprises;
h. the financing of generation change (i.e. retirement of the previous
owner) or staff-related enterprise transmission, allowing for a
Financing the purchase of assets other than real estate (e.g. construction equipment), with the purpose of renting them to
third parties, is however eligible.
4 The financing of land purchase is excluded unless it is technically essential for the investments. Financing of purchase of
farmland is entirely excluded.
3
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continuation in economic activity of the respective enterprise
where (i) either buyer or the entity to be sold are not SMEs at the
time of the financing agreement, or (ii) the total financing need
for the operation exceeds EUR 1m (excluding own funds)
Subject to the restrictions set out above, investments and expenditure
which may be considered for financing include:
1. The purchase, renovation or extension of tangible assets;
2. Investment in intangible assets, i.e.:
 Development, planning and financing costs during the
construction phase of a tangible asset;
 R&D expenses (fees, development costs and gross salaries
directly associated with the research, development, and
innovation components of the activity);
 Building up of distribution networks in domestic or other
markets inside the EU (asset and/or trademark acquisition,
operational costs and labour costs).
3. Generation change;
4. Medium and long term working capital needs as further set out
below.
Working capital
Financing to SMEs with a view to providing SMEs a stable working capital
base allowing such SMEs to finance liabilities associated with their trading
cycle, as part of their normal activities5 shall be eligible, provided that:
- the financing made available to the SME to finance working capital
has a term of at least two years; and
- it reflects a long-term funding need by that SME
Both amortising loans and revolving facilities (i.e. credit lines) are eligible
forms of financing under CYPEF PRSL.
Loan re-financing
Refinancing is defined as the action of financing an existing loan that has
not reached legal maturity. PRSL may support loan re-financing for an
amount up to 15% of the Maximum Loan Portfolio.
Loan re-financing would aim to improve financing conditions to the SMEs
and would help strengthen their cash flows.
To support loan re-financing while properly managing the underlying
credit risk, the following eligibility framework shall be applied:

re-financing shall not be allowed (i) for loans which are more than
sixty (60) days past due or (ii) in NPL or default status within
applicable national banking rules;

SME loans to be re-financed shall be subject to a new credit
Categories financed can include, amongst others, the funds required to pay for raw materials and other manufacturing
inputs, inventories and overheads, funding to finance trade receivables and non-consumer sales receivables. The utilisation
of the working capital line may fluctuate upwards and downwards during its minimum 2 year lifetime.
5
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assessment and their financial sustainability (borrower and loan
purpose if applicable) shall be verified, which would include
collateral revaluation (if any);
SME Loan Maturity

Refinanced loans shall benefit from lower interest rates. In addition
they may benefit from longer maturities (compared to the
remaining loan maturity of the existing loan) and/or increase of
loan amount. Refinanced loans that benefit only from interest rate
reduction must be initially signed not longer than 18 months since
the date of the re-financing agreement and should have a
minimum remaining maturity (under the re-financed agreement) of
24 months;

Existing collateral arrangements shall not be worsened on refinanced loans;

Amortising loans shall not be changed to credit lines and/or
overdraft facilities when re-financed.
SME loans should have a minimum and a maximum term of 2 and 12 years
respectively.
Notwithstanding the above, the term of investment loans granted by FIs to
SMEs should not exceed the economic and technical life of the financed
project.
SME loan and Amount
The principal amount of an SME loan included in the portfolio (which can
be included for its full principal amount and not for portion thereof) shall
not be greater than the amount that would cause the Gross Grant
Equivalent (“GGE”) with respect to the final beneficiary to exceed thresholds
allowed under the applicable de minimis regulation.
Such thresholds are indicatively presented below:
a) EC regulation 1407/2013 – Aggregate GGE to a single undertaking
shall not exceed EUR 200 000 over any period of three fiscal
years, except to a single undertaking performing road freight
transport for hire or reward in which case the threshold is
reduced to EUR 100 000 over any period of three fiscal years.
b) EC regulation 1408/2013 – Aggregate GGE to a single undertaking
shall not exceed EUR 15 000 over any period of three fiscal years.
Note: The cumulative amount of de minimis aid granted by the Republic of
Cyprus to undertakings active in the primary production of agricultural
product over any period of 3 fiscal years shall not exceed EUR 7 060 000.
Not more than 30% of the Maximum Loan Portfolio (as defined below) may
be committed to SME loans of an individual principal amount exceeding
EUR 600,000.
Currency of SME loans
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An SME loan must be denominated in EUR.
ANNEX II: TO CALL FOR EXPRESSION OF INTEREST TO SELECT FINANCIAL INTERMEDIARIES UNDER
CYPEF PRSL
SME Portfolio Criteria
The Operational Agreement will include the definition of SME Portfolio
Criteria (e.g. maximum single industry concentrations (expressed by NACE
code – Rev.2. Division), maximum limits for bullet and/or balloon loans,
etc.), aimed at ensuring a certain risk profile of the PRSL.
Combination with other
EU/National schemes
and/or other EIB
financing facilities
A project that has already been financed by another EU/National Scheme
can also benefit from CYPEF financing, to the extent that the two sources of
funding do not pre-finance or re-finance each other. The sum of the CYPEF
loan and funding from other EU/National sources cannot exceed 100% of
the project cost.
A CYPEF PRSL loan may be also combined with other EIB financing
facilities, subject to the same abovementioned rules. However, according to
current rules, the CYPEF PRSL loan shall be considered as EIB resources for
the purpose of measuring additionality when the fulfilment of the
additionality condition is required under such EIB loans.
Maximum Loan Portfolio
The maximum aggregate notional amount of newly originated SME loans
that may be co-financed by the EIF and the FI and covered by the PRSL, as
agreed in the Operational Agreement.
Availability Period
Typically up to 24 months from the date of signature of the Operational
Agreement.
Origination Model
Newly originated SME loans to be covered by the PRSL are included in the
PRSL portfolio subject to pre-set loan inclusion criteria defined on a loan by
loan basis.
Risk sharing
arrangements
Cover of losses on a loan by loan and pari passu basis by EIF and the FI.
EIF’s repayment claim under the Operational Agreement will be reduced
accordingly.
Loss Cover
EIF will cover losses incurred by the FI on the SME loans co-financed by
the PRSL calculated under the risk sharing arrangement. At any time, the
EIF’s liability for coverage of such losses shall not exceed the outstanding
principal amount under the relevant Operational Agreement at such time.
Defaulted SME loans
definition
Defaulted SME loans definition shall include SME loan default, SME loan
acceleration and SME loan restructuring.
Disbursement under the
Operational Agreement
Disbursement to the FI in several tranches, either ex ante or ex post, on a
periodic basis, based on actual utilisation.
Decision on whether funding will be provided to the FI ex ante or ex post
will be taken by EIF on the basis of EIF’s assessment regarding the credit
ability of the selected FI (as concluded during the evaluation/due diligence
process).
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In case of non or partial build-up of the SME loan portfolio, prepayment
clauses shall apply.
Financial covenants and
counterparty risk
mitigants
On the basis of EIF's assessment of the counterparty risk of the selected FI
(as concluded during the evaluation/due diligence process), EIF will request
appropriate financial covenants and undertakings by the selected FI under
the Operational Agreement.
EIF reserves the right to determine the collateral or risk mitigants to be
provided by the selected FI under the Operational Agreement, including
but not limited, subject to local law requirements, rating triggers, pledges
or negative pledges and assignment of receivables deriving from the SME
loans.
Repayment of the
financial instrument under
the Operational
Agreement – for funds
disbursed to SMEs
Repayments would occur on a on a periodic (normally quarterly) basis
typically mirroring (i) principal repayments (on a pro rata basis on the basis
of the co-financing rate) and (ii) any recovered amount (according to the
risk sharing rate), of the underlying SME loans.
Other interest due
In respect of any interest period, the FI shall pay interest at a deposit
interest rate, as agreed with EIF under the Operational Agreement, applied
to the difference between i) the outstanding principal amount of the
Financial Instrument and ii) the portion of the aggregate outstanding
principal amount of SME Loans co-financed by the Financial Instrument.
Loss Recoveries
The FI shall take recovery actions (including enforcement of any security) in
relation to each defaulted SME loan co-financed by the PRSL in accordance
with its internal guidelines and procedures.
EIF’s repayment claim will be reduced/written-off in proportion to the
losses occurring on the SME loans (according to the risk sharing- rate).
Recoveries with respect to losses on such SME loans by the FI shall be
shared between EIF and the FI according to the risk sharing arrangement.
Pricing and Collateral
Requirements
SME loans provided under the Facility will be offered to Eligible SMEs on
the basis of the pricing (on its funded part of the SME loan) and collateral
policy submitted by the selected FI.
The CYPEF will charge 2.5% - unless further notified by EIF - on the
amounts lent to the FI for as long as these amounts are on-lent to SMEs.
Financial Advantage
The Financial Advantage is the level of reduction of the interest rate
charged by the FI, as a result of CYPEF’s favourable pricing and any
reduction of interest rate proposed by the FI on its funded portion of the
SME loan.
The Financial Advantage made possible due to the PRSL should be
identified at the time of signature of the SME loan agreement and
communicated to the benefiting SME.
Reporting
FIs shall provide EIF with information on a periodic (normally semi-annual)
basis in a standardised form and scope, which will be defined by EIF.
In addition, a monthly KPI report (aggregate information with regards to
applications received, approvals, signatures, disbursements and rejections)
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will need to be submitted by the FI.
Indicative reporting templates for these two reports are provided, for
information, along this Call.
Monitoring and Audit
FIs and SMEs shall agree to, inter alia, allow persons designated by the
RoC, the EIF, the EIB, including representatives of the European Court of
Auditors, as well as persons designated by other EU institutions or bodies
when so required by the relevant mandatory provisions of EU law:



De minimis monitoring
requirements
To visit and inspect their offices, sites, installations, and works (as
applicable) and conduct such checks as they may deem necessary;
To interview their representatives and not obstruct contacts with
any other involved/affected person and
To review their accounts, books and records and to take copies of
related documents to the extent permitted by law.
Prior to the granting of a loan:
a) the SME shall be informed in writing of the prospective amount of the
aid expressed as a GGE and of its de minimis character, making express
reference to Regulation 1407/2013 or 1408/2013 accordingly ,and
b) The Financial Intermediary shall obtain a declaration from the SME in
written form about any other de minimis received.
Publicity
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FIs shall undertake to carry out the following marketing and publicity
actions:

Reference CYPEF in the product labelling – e.g. “Entrepreneurship
Fund – Co-financed loans”;

Promote CYPEF and CYPEF PRSL through its website, also
describing key terms and conditions;

Include on the FI’s website an information page on EIB’s activity in
favor of SMEs, including the eligibility criteria and a reference to the
advantageous conditions offered by EIB – Relevant text will be
provided by EIF at contractual negotiations stage;

Inform each SME of the RoC’s (through CYPEF) and EIB’s support
and of the Financial Advantage stemming from CYPEF and EIB
involvement in the PRSL. The Financial Advantage should be clearly
estimated and transparently represented to the SME by including in
each SME loan certain wording – Relevant text will be provided by
EIF at contractual negotiations stage;

Provide to the EIF/EIB its address, a contact name for a person who
can reply to potential requests for financing from SMEs and the
coordinates of such person – this information will be used on the
website/webpages maintained by EIB and EIF in order to allow
SMEs to quickly identify the partner banks through which the SMEs
may have access to CYPEF funds.

Undertake additional publicity measures in order to communicate
and promote the CYPEF products to the interested SMEs. FIs are
ANNEX II: TO CALL FOR EXPRESSION OF INTEREST TO SELECT FINANCIAL INTERMEDIARIES UNDER
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required to specify additional, intended, publicity measures in their
expression of interest and these should include inter alia:
promotional billboards and leaflets (inside its branches) and
publications in the newspapers and press.
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