The Luxembourg law of March 3, 2026 (the Law) transposed Directive 2024/927/EU (the AIFMD II Directive) into Luxembourg law by amending both the Luxembourg law of July 12, 2013 on alternative investment fund managers and the law of December 17, 2010 on undertakings for collective investment.

Among the key innovations introduced by the AIFMD II Directive are, notably, the harmonization of rules governing loan-originating alternative investment funds, enhanced liquidity management tools, new delegation and substance requirements, and strengthened investor disclosure obligations.

Against this backdrop, the present article focuses specifically on the practical impact of the Law on financing transactions involving a Luxembourg alternative investment fund (AIF), whether as lender or as borrower, by highlighting considerations for certain stakeholders entering into a financing transaction.

Lenders

For an AIF acting as lender in a financing transaction, the Law introduces a framework governing loan origination. Under the AIFMD II Directive, "loan origination" covers both direct lending by the AIF as original lender and indirect lending through a third party or SPV where the AIFM (or the AIF) has structured the loan or pre-agreed its principal terms before the AIF acquires exposure. The rules apply to all authorized EU AIFMs in respect of all AIFs that they manage.

Where an AIF qualifies as a "loan-originating AIF" (i.e., where its investment strategy is principally focused on loan origination, or where originated loans represent at least 50% of its NAV), the Law imposes several additional requirements on such AIFs, such as for example:

  • Risk retention: Where an AIF transfers an originated loan to a third party, it must retain a meaningful economic interest in that loan by holding at least 5% of its notional value. This retention obligation lasts until the loan's maturity, or for a minimum of eight years where the loan's maturity exceeds that period. The Law provides for limited exemptions, notably in cases of the AIF’s liquidation, sanctions compliance, implementation of the investment strategy in the best interests of investors or significant credit deterioration of the borrower.
  • Concentration limit: In order to limit counterparty risk, the Law caps the exposure that an AIF may have to a single borrower where that borrower is a financial undertaking (i.e., an AIF or a UCITS). Loans granted to any such borrower may not exceed 20% of the fund's capital, calculated net of fees and expenses. AIFs must comply with this limit within 24 months of their first closing (with the possibility of a 12-month extension subject to regulatory approval).
  • Prohibited lending: Loans may not be granted to the AIFM, its staff, the depositary (or its delegates), any delegate of the AIFM or any group affiliate of the AIFM (subject to a narrow intra-group carve-out).
  • Leverage caps: Introduction of leverage limits. Open-ended AIFs may not exceed borrowings of 175% of their net asset value, while closed-ended AIFs are subject to a higher cap of 300% of their net asset value.
  • Credit policies: The Law requires AIFMs to put in place and maintain documented internal policies governing the entire lending process, from the initial granting of loans and the assessment of borrowers’ creditworthiness through to the ongoing monitoring of the loans portfolio. These policies must be reviewed at least on an annual basis to ensure they remain adequate and up to date.
  • Closed-ended structure: The Law prescribes the structural form of loan-originating AIFs. As a general rule, such AIFs must be set up as closed-ended vehicles. An exception applies where the AIFM is able to satisfy the Luxembourg regulator (the Commission de Surveillance du Secteur Financier) that the AIF’s liquidity risk management system is appropriate having regard to its investment strategy and redemption policy.
  • Enhanced disclosures: AIFMs of loan-originating AIFs must keep investors informed of the composition and status of the loan origination portfolio. In addition, on an annual basis, AIFMs are required to provide investors with a comprehensive breakdown of all fees, charges and expenses, as well as details of any SPVs or group entities through which the AIFs operates.

It should be noted that the grandfathering provisions have been granted so that AIFs constituted before April 15, 2024 benefit from a grandfathering period until April 16, 2029 in respect of (i) the concentration limit and (ii) the leverage caps and closed-ended structure requirements, provided that existing exposures are not increased beyond the applicable limits.

Therefore, AIFMs should consider (i) reviewing and updating the relevant AIF's credit policies, risk management procedures and delegation arrangements, (ii) assessing leverage and concentration levels against the new caps and (iii) if necessary, updating the AIF's constitutional documents and investor disclosure materials. These requirements may also have an impact on the provisions of the financing documents (e.g., the facility and/or credit agreement) to which the AIF as lender is a party as lender.

Borrowers 

For an AIF acting as borrower in a financing transaction, the Law and the broader AIFMD II reforms do not introduce any material changes to the way financing transactions involving Luxembourg AIFs are structured or documented. The existing framework governing the capacity of an AIF to incur debt and grant security remains broadly unchanged, and market participants may therefore continue to rely on established market practice in this respect.

That said, the usual points of attention remain fully relevant and should continue to be carefully considered on a transaction-by-transaction basis. In particular, borrowers and their counsel should consider:

  • Verifying whether the relevant AIF's constitutive documents have been amended following the entry into force of the AIFMD II Directive, and checking whether any new limits have been introduced;
  • Requiring additional representations and warranties from a lender that is not a reputable/well-established bank in the facility and/or credit agreements further to the implementation of the Law and verifying that any such representations and warranties are accurate; and
  • Reviewing the applicable AIFM agreement to determine whether the entry into of the financing arrangement requires the prior consent or information of the AIFM as well as those of any relevant service providers of the AIF (such as the portfolio manager, the depositary, the investment manager, etc.).

For further information on other aspects of the AIFMD II Directive, please refer to our related articles: