BELGIUM Law and Practice Contributed by: Wim Aerts, Dorothée Vermeiren and Stijn Van Walleghem, Clifford Chance
1.5 Junior and Hybrid Capital On some transactions in Belgium, private credit providers will either co-invest in the equity or provide PIK (payment-in-kind) financing which may or may not have an equity-linked compo - nent in the pricing or fee structure. PIK financing will often be structurally subordinated and will benefit from limited security with no overlap with the security package for the senior financing. The security will often be limited to shares in an entity above the single point of enforcement for the senior financing and claims on such entity. There will typically not be intercreditor arrange - ments between the PIK financing and the senior financing. 1.6 Sponsored/Non-Sponsored Debt Private credit providers are mostly focused on sponsor-led transactions, but there are a num - ber of private credit funds which regularly trans - act with founder-owned companies, either from specific strategies or from general leveraged lending strategies. Whether more private credit providers will consider founder-owned compa - nies or financing them from leveraged lending strategies will in part depend on the pressure to deploy capital. 1.7 Recurring Revenue Deals and Late- Stage Lending Recurring revenue-based financing is provided by private credit providers in Belgium, typically 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 Belgium as there are not many deals in the market which will test this limit, given the number of private credit pro - viders which can take very large tickets. 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 Belgian specific as the vast majority of private credit providers which are active in Belgium are international funds. 1.9 Impending Regulation and Reform Belgian Regulators and Private Credit The Belgian regulators (the Belgian National Bank and the Financial Services and Markets Authority) are not specifically focused on regu - lating private credit lenders. They are awaiting the implementation of the European Directives AIFMD2 and CRDVI, but are 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 is yet to be implemented across the Euro - pean Union. It 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;
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