AGEFI Luxembourg - avril 2024

Avril 2024 3 AGEFI Luxembourg Fiscalité / Economie Continuedonpage 1 However, the Directive falls short of estab- lishing a true loan origination passport for EU AIFs, as the reference to the “internal market for loanorigination” is set out in the recital section and not in the operative pro- visions of theAIFMD. At this stage, it there- fore remains unclear whetherAIFMD II will effectively remove barriers for cross-border lending into allmember states. We have summarised below the key requirements which apply solelytoloanoriginatingAIFs: Leverage limits: AIFMD II in- troduces leverage limits for AIFs, setting a cap of 175% for open-endedfundsand300%for closed-ended funds. Leverage is calculated using the commitment method and expressed as the ratio be- tween theAIF’s exposure and its NAV. Subscription lines backed by investor commitments are excluded from the leverage calculations. AIFMs managing AIFs existing as of 15April 2024 do not have to com- plywiththenewrulesiftheydonotraisenewcapital after that date. If theydo raise additional capital after 15 April 2024, AIFs will be grandfathered until 16 April2029,butduringthegrandfatheringperiodthey cannot increase their leverage beyond the new caps or, if they already exceed these caps, beyond their current leverage levels as of 15April 2024. Restrictions for open-endedAIFs: Loan originating AIFsmay adopt an open-ended structure only if the AIFMs ensure that their liquidity risk management systems complywith theAIFs’ investment strategies and redemption policies. The European Securities andMarketsAuthority (ESMA) is taskedwithdevel- oping regulatory technical standards (RTS) by 16 April 2025 to establish the criteria for liquidity man- agement,cashbufferrequirements,andstresstesting for open-ended loan originatingAIFs. While similar obligations already exist for Luxembourg AIFMs, it remains to be seen how the RTS will impact current regulatory practice. AIFMs managing AIFs existing as of 15April 2024 will not have to comply with the new rules if they do not raise new capital after that date andwill be grandfathered until 16April 2029 if they do raise additional capital after 15April 2024. The following requirements apply toanyAIFs that originate loans: 5% risk retention requirement: Under the new risk retention rules, AIFs must retain 5% of the notional value of any loans they transfer to third parties. The purpose of these new rules is to avert moral hazard andmaintain the general credit qualityof loans orig- inatedbyAIFs.Forloanswithuptoaneight-yearma- turity, and all consumer loans irrespective of their maturity, the risk retentionrequirement appliesuntil the loans mature. For other loans with longer matu- rities, the risk retention obligation applies for at least eight years. One keydevelopment tomonitorwill be to see how this new risk retention requirement will interplay with the existing retention rules under the European securitisation regulation. The new risk re- tention requirements only apply to loans originated after 15April 2024. 20% concentration limit for certain categories of borrowers: AIFMDII introduces a 20%loan concen- tration limit forAIFs involved in loanoriginationvis- à-vis borrowers from defined categories. These categories include inter alia banks, insurance or rein- surance undertakings, andMiFID investment firms, as well as other AIFs or UCITS. The 20% concentra- tion limit is determined by reference to the capital of the AIF, which includes the aggregate contributed capital and outstanding capital commitments, less anyfees,charges,andexpensesincurredbyinvestors. Compliancewith this capmust be ensuredwithin24 months of thefirst subscription in theAIF, unless the competentauthorityoftheAIFMallowsanextension for a maximum of one year upon submission of a duly justified investment plan. The limit ceases to applywhen theAIFMstarts to sell theAIF’s assets as part of the liquidation of theAIF. AIFMs managing AIFs existing as of 15 April 2024 will not have to comply with these new rules if they donotraisenewcapitalafterthatdate.Iftheydoraise additional capital after 15 April 2024, AIFs will be grandfathered until 16 April 2029, but during the grandfatheringperiodtheymaynotincreasetheirex- posurevis-à-vis anysingleborrower beyond the20% limit or, if theyalreadyexceed this limit, beyond their current exposure as of 15April 2024. Certainprohibited activities: AIFswill be prohibited fromissuing loans to associatedparties, including the AIFManditsstaff,aswellasdepositariesandtheirdel- egates. While member states may restrict consumer lending or servicing consumer loans based on “over- ridingreasonsofpublicinterest”intheirterritory,they cannotprohibitthemarketingofAIFsintheirterritory thatgrantorserviceconsumers’loansinothermember states. Furthermore, AIFs are prohibited fromengag- ing in “originate-to-distribute” investment strategies underAIFMDII,regardlessofwhetherthisconstitutes theentiretyormerelyaportionoftheirinvest- ment strategy. Loans originated before 15 April 2024 are exempt fromthese rules. Policies, procedures and processes for the granting of loans and credit risk management: AIFMsmanagingAIFsen- gaging in loan origination must establish and maintain robust policies, procedures, andprocessesforloangrantingandcredit risk management, ensuring they are regularlyupdatedandreviewed at least annually. These requirements do not apply to the originationof shareholder loans, where the notional value of such loansdoesnotexceedinag- gregate 150%of the capital of the AIF or to loans originated before 15April 2024. Overall, the new loan origination rules, while intro- ducing new requirements and restrictions for Lux- embourg AIFMs managing AIFs involved in loan origination, are in most cases manageable. Al- though they are annoying, the newrules shouldnot prevent the continued growth of private debt as an asset class. From a Luxembourg perspective, the newregimewill not affect the attractiveness of Lux- embourg for the establishment of private debt funds vis-à-vis other EUfinancial centres. It is how- ever unclear whether the stated aimof establishing amore efficient internal market for loan origination byAIFs in the EUwill be achieved. * Jean-Christian SIX, Partner, Funds and Asset Management, Allen & Overy Luxembourg Yannick ARBAUT, Partner, Funds and Asset Management, Allen & Overy Luxembourg The AIFMD 2 loan origination regime: New rules for alternative investment fund managers INCOMPARABLE ON-SITE SERVICES WITHOUT EXCEPTION: Stylish Gaming Room, Brainstorm Room, Work Café, Outdoor Fun Area, Concierge, Restaurant, Fitness Workspace from another planet The sky isn’t the limit anymore. Reach up for the stars! ełłĸÒşȦ Òĸ łČƥîú ŜÒşĪ ħŸŦŰ Ò ČúƑ ŦŰúŜŦ ÒƑÒƗ ČşłĶ the Luxembourg airport. It is designed to offer you multiple options of accessibility and various services on and off site. 5.200m 2 łČƥîú ŦŜÒîú ÒƐÒęĭÒíĭú ŦŰÒşŰęĸč ČşłĶ DZǯǯĶ 2 .