Direct lending funds are emerging as key sources of loan financing. Understanding the local legal framework and peculiarities is important for executing a lending transaction by unregulated lenders. We picked out three jurisdictions from our brand new Schoenherr Direct Lending Guide for you: Austria, Romania and Slovakia.

Austria | Yes. Loan origination by funds is permitted under the general scope of permitted investment activities for AIFs under the AIFMD. Austrian law specifically provides for an exemption from banking licence requirements for AIFM/AIF acting within the scope of their AIFMD licence.

For funds that are not licensed under the AIFMD, careful structuring will be required, since otherwise lending is an activity reserved to licensed (or passported) credit institutions. 

Romania | No. Loan origination and lending on a professional basis are licensed activities in Romania (absence of licence from the central bank triggers criminal liability and risk of nullity of transactions performed without such a licence). No exemption applies in relation to AIFs. Alternative structures that may be set up include private placements and fronting bank structures with sub-participations.

Private placements (through issuance of bonds) legislation is quite limited in scope and not very coordinated. More precisely: Romanian corporate law provides that the bonds are issued based on a prospectus, but is silent as to minimum content (the minimum content is regulated only in the case of listed bonds). The bond issuer and the fund / debt fund / direct lending fund can freely decide on the terms and conditions of the bonds.

Fronting bank structures with sub-participations are also possible in principle. In practice, local banks are rather reluctant to act as the lender of record for unaffiliated sub-participants. 

Slovakia | Yes. Loan origination by funds is permitted under the general scope of permitted investment activities, but not as a main activity. 

Austria | No. Provided that the fund is itself regulated under the AIFMD and lends within the scope of its licensed AIF activities. If such a licence is absent, the (illegally lending) person/fund would not have an enforceable claim for interest and fees (although the principal claim would not be affected) and the guarantee or surety it has obtained would not be enforceable. 

Romania | No difference of treatment applies in or outside insolvency between regulated or unregulated secured creditors.

Slovakia | No.