PNC Bank Obtains Significant Exemption Permitting Lending to Registered Funds

Cleary Gottlieb represented PNC Bank, National Association, a wholly owned subsidiary of The PNC Financial Services Group, Inc., in obtaining a significant exemption from the SEC under Section 18(f)(1) of the Investment Company Act of 1940 permitting Market Street Funding LLC, an asset-backed commercial paper conduit, to lend to SEC-registered funds in loan facilities administered by PNC Bank.

Section 18(f)(1) of the Investment Company Act prohibits registered open-end management investment companies from engaging in most types of borrowings, except for certain borrowings from banks. The exemption permits registered open-end management companies to participate as borrowers in loan facilities involving Market Street, which is not a bank. It was based in part on the fact that PNC Bank will arrange for liquidity support by highly rated banks for the loans made by Market Street under the loan facilities.

PNC Bank’s asset-backed securities group, which will administer the loan facilities, is a leader in the asset-backed commercial paper market, having closed over 172 securitization transactions in Market Street, representing approximately $24.7 billion in commitments as of September 30. It is intended that the group will market the loan facilities to select registered open-end management investment companies as part of its overall origination strategy to offer customized securitization solutions to current and prospective clients of PNC Bank.

The exemption is particularly significant because it marks the first time the SEC has granted an exemption of this kind since before the onset of the financial crisis in 2007.