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The Fund’s financing includes various types of schemes, including:
- capital call and subscription credit facilities (usually short-term and sometimes used to raise funds until closure, often for investment bridging purposes);
- NAV or asset-backed facility (depending on the fund’s underlying investments);
- Hybrid facilities (combining features of capital calls and asset-backed loans, often long-term, with undrawn (and sometimes “recoverable”) commitments of investor and fund investments) rely on),
- Umbrella facility (in which separate loans are provided to multiple borrowers, often structured for each individual borrower under common management).
Borrowers include a variety of fund entities, and lenders include traditional banks, credit funds, private equity funds, and other alternative investors.
Luxembourg is a popular choice for financial financing transactions due to its strong legal framework created by the Law on Financial Collateral Arrangements of 5 August 2005 (the “Financial Collateral Law”). The Act provides for remote security arrangements and instruments for bankruptcy security, and its creditor-friendly approach has attracted a wide range of capital providers. In particular, future assets may be subject to collateral, which can cover claim-related rights (such as capital call rights). These aspects provide attractive features for lenders when building security packages around fund financing capabilities.
A typical security package for capital call fund financing includes collateral for the bank account required by the investor to contribute to the fund and collateral for the investor’s outstanding capital commitments, providing rights to the lender. To do. , upon execution, the capital call rights under the relevant Fund Master Agreement (often, but not always, the limited partnership agreement) and the associated power of attorney for the beneficiary of the security interests supporting those rights. exercise.
In relation to the security of an investor’s outstanding capital commitments, notices should be served on the investor, whether through ad hoc communications or periodic communications (e.g., a fund’s periodic report). It can be done, and it can also be done by any method. Notifications via the Investor Portal or other valid delivery methods such as email. In some circumstances (which may be triggered by drafts contained in the Fund Terms and Conditions), the lender will also require the investor to waive defense, set-off and other rights. Appropriate governing law may also be required in this regard. The evaluation will include consideration of the investor’s jurisdiction.
In the case of a NAV or asset-backed facility, the security package extends to the fund’s underlying assets and can include, for example, security over receivables and receivables, accounts, notes, bonds, shares, or other capital instruments of the holding company . These transactions often see more bespoke arrangements, as parties seek to build security around issues that may arise from third-party consent or disputes between creditors.
Investment fund legislation in Luxembourg is constantly evolving and our team closely monitors developments. One example of recent changes that increase flexibility in the fund formation process is his new law, effective July 21, 2023, which aims to improve and modernize Luxembourg’s five sectoral laws regarding investment funds. is. This change allows additional legal entity forms such as Luxembourg LP (partnership by shares, simple limited partnership, special limited partnership) to become part II of the Luxembourg law of 17 December 2010 on collective investment undertakings (UCI). Now available for funds. Previously it was limited to public limited companies. Luxembourg’s already flexible regulatory regime has become even more attractive.
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