The EU Parliament final report adds the following three definitions, as in the Council position:

‘loan-originating AIF’ means an AIF whose principal activity is to originate loans and for which the notional value of its originated loans exceeds 60 % of its net asset value; and

‘capital’ means aggregate capital contributions and uncalled committed capital, calculated on the basis of amounts investible after the deduction of all fees, charges and expenses that are directly or indirectly borne by investors;

‘leveraged AIF’ means an AIF whose exposures are increased by the managing AIFM, whether through the borrowing of cash or securities, or leverage embedded in derivative positions or by any other means.

Regarding the requirements to have, for loan originating activities, effective, up-to-date and annually reviewed policies, procedures and processes for granting credit, assessing the credit risk and administering and monitoring the credit portfolio, the EU Parliament final report excludes the shareholder loans where they do not exceed in aggregate 150 % of the capital of the AIF. The reference to capital is broader than the reference to 150% of the NAV of the AIF as mentioned in the EU Parliament draft report.

 The 20% limit of the AIF capital relating to certain types of borrowers is not broadened in the EU Parliament final report, there are no additional references to “commitments or overall subscription”.

The ban on the granting of loans to an entity within the same group as the AIFM does not apply where that entity is a financial undertaking that exclusively finances borrowers that are neither AIFM and its staff, depositary and its delegates nor an entity to which the AIFM has delegated functions pursuant to Article 20 of the AIFMD.

The following new obligation is added in the EU Parliament final report: the proceeds of the loan, minus the fees for the administration of the loan, shall be attributed to the fund in full. All costs and expenses linked to the administration of the loan shall be clearly disclosed to investors according to the disclosure to investors obligation in the AIFMD.

The EU Parliament final report does not remove the retention obligation of 5% of the notional value of loans originated by the AIF applicable on an ongoing basis, and this obligation is extended until the maturity of the loans.

The 5% retention obligation does not apply to the loans that the AIF has purchased on the secondary market or where one of the following applies: a) the sale of the loan is necessary for the AIF not to be in breach of its mandate or of one of its investment or diversification rules and such potential breach is unintentional on the part of the manager, for instance as a result of the exercise of subscription or redemption rights; b) the disposal is necessary as a result of the Union sanctions; c) the AIF needs to dispose of the loans in order to redeem investors’ units or shares as part of the wind-down of the AIF.

The EU Parliament final report only requires the loan-originating AIF to be closed-ended when the AIFM cannot demonstrate that the AIF has a sound liquidity risk management system that ensures the compatibility of its liquidity management system with its redemption policy. The EU Parliament draft report requires all AIF that cannot demonstrate its liquidity robustness to be closed ended. The EU Parliament final report is more precise in this regard and only applies to loan-originating AIFs. ESMA shall develop RTS relating to the assessment by competent authorities whether a loan-originating AIF has a sound liquidity management system and may maintain an open-ended structure, having regard to the underlying loan exposure, average repayment time of the loans and overall granularity and composition of AIF portfolios.

The following transition period is added in the EU Parliament final report: AIFMs in so far as they manage AIFs that originate loans and that have been constituted before the date of entry into force of AIFMD 2 may continue to manage such AIFs for 5 years following the date of entry into force of AIFMD 2 without having to comply with the obligation for originating AIFs to be closed-ended when the AIFM cannot demonstrate that they have a liquidity management system compatible with the redemption policy. By way of derogation, loan-originating AIFs constituted before the date of entry into force of AIFMD 2 and that do not raise additional capital for 5 years following the date of entry into force of AIFMD 2 shall be deemed to comply with the AIFMD 2. 

Access the European Parliament Final Report of 2 February 2023 here.