LUXEMBOURG Law and Practice Contributed by: Stefanie Ferring, Oliver Zwick and Geoffrey Scardoni, Clifford Chance
1.7 Recurring Revenue Deals and Late- Stage Lending Recurring revenue-based financing is provided by private credit providers in Luxembourg, typi - cally in relatively small deals. 1.8 Deal Sizes, Fund Sizes and Fundraising It is difficult to point to a typical size limit for private credit transactions in Luxembourg. The ability to take a large ticket will of course also depend on the fund’s available capital and/or the status of new fundraising. These limits and any challenges in new fundraising are, however, not Luxembourg specific as the vast majority of private credit providers which are active in Lux - embourg are international funds. According to a recent survey, 45% of debt funds have AuM up to EUR100 million. Thirty-one percent of debt funds are mid-size funds – ie, those with a net asset value of EUR100 million to EUR500 million, a significant percentage increase over last year. Finally, large funds ranging from EUR1 billion to EUR5 billion represent 22%. 1.9 Impending Regulation and Reform Luxembourg Regulators and Private Credit Although the Luxembourg Financial Sector Supervisory Authority, Commission de Sur- veillance du Secteur Financier (CSSF) consid - ers private credit activity to a limited extent in its guidance on the scope of the local licence requirements for professionals performing lend - ing operations (please refer to 2.1 Licensing and Regulatory Approval ), the CSSF generally awaits the forthcoming implementation of the European Directives AIFMD2 and CRDVI, but is not developing any initiatives in parallel. AIFMD2 The current European Directive on Alternative Investment Fund Managers (AIFMD) requires
fund managers to comply with a variety of pru - dential and conduct of business rules. These rules are general in nature and apply to business operations and dealings with investors generally. AIFMD also contains rules which are specific to investment techniques (such as leverage) and which are specific to certain asset classes (such as private equity) but are silent on loan origina - tion. AIFMD has, however, been amended (to include loan origination among other matters) but such amendment is yet to be implemented across the European Union. AIFMD is referred to as AIFMD2 in its amended form. AIFMD2 introduces a range of rules on loan orig - ination. These include subject matters such as: • implementing policies, procedures and pro - cesses for the granting of loans; • implementing policies, procedures and pro - cesses for assessing credit risk; • loan concentration of 20% of the fund’s capital (called and uncalled contributions) to a single borrower of a certain type; • leverage restrictions (175% for open-ended funds and 300% for closed-ended funds); and • prohibition to grant loans to the fund manager (or its staff) or to its delegates, to the fund’s depositary (or its delegates), or to group companies. AIFMD2 is not going to impose any specific licensing requirements for fund managers which are already authorised. They may need to apply for a variation of permissions but will otherwise only need to ensure compliance with the new rules. These new rules are in relation to the business operations of the fund. They will not give the fund any regulatory permissions to grant loans
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