BSP Newsletter - January 2014

BANK LENDING, STRUCTURED FINANCE, SECURITISATION

UPDATED CSSF FAQ ON SECURITISATION AND CLARIFICATION OF POSITION ON THE IMPACT OF THE AIFM LAW ON SECURITISATION VEHICLES

On October 23rd 2013, the Luxembourg Supervisory Authority for the Financial Sector ("CSSF") published an updated version of its "Frequently Asked Questions" on securitisation vehicles ("FAQ") in order to clarify the impact on securitisation of the law dated July 12th 2013 on alternative investment fund managers (the "AIFM Law"), and in particular the CSSF's position in relation to the definition of "securitisation special purpose entities" under the AIFM Law.

The AIFM Law excludes from its scope vehicles carrying out transactions defined as securitisation transactions within the meaning of article 1 (2) of Regulation EC 24/2009 of the European Central Bank ("ECB") of December 19th 2008 (the "ECB Regulation"). Given that the AIFM Law provides for an autonomous definition of securitisation, it was not clear which Luxembourg securitisation vehicles were covered by the relevant legal exclusion, as the definition of securitisation under the Luxembourg law dated March 22nd 2004 on securitisation, as amended (the "Securitisation Law"), is different and somewhat broader than the one of the AIFM Law, which refers to the definition set out in the ECB Regulation.

As a result, each securitisation vehicle needed to assess its activities in light of the AIFM Law, in order to determine whether or not it may fall within its scope.

The CSSF provided useful guidance in its FAQ in order to determine whether Luxembourg securitisation vehicles qualify as alternative investment funds ("AIF") or not. In accordance with said FAQ, the following criteria apply to assess the impact of the AIFM Law on Luxembourg securitisation vehicles governed by the Securitisation Law:

Luxembourg securitisation vehicles qualifying as AIFs

Luxembourg securitisation vehicles primarily acting as "first lenders" and originating new loans themselves, since no assets (and respectively, no credit risks) are transferred to, or purchased by, such securitisation entity, and hence it should not be considered as being engaged in a securitisation transaction within the meaning of the AIFM Law; Luxembourg securitisation vehicles issuing structured products linked to non-credit related underlying assets (i.e. equities, commodities, indices), where the transfer of risk attached to such assets is only accessory to the principal activity of the entity (synthetic exposure to non-credit related underlying assets). Luxembourg securitisation vehicles not qualifying as AIFs

Luxembourg securitisation vehicles, securitising credit risks, including vehicles issuing collateralised loan obligations; Luxembourg securitisation vehicles, issuing only debt instruments, and this irrespective of whether or not such vehicles meet the definition of "ad hoc securitisation structure" under the AIFM Law; Luxembourg securitisation vehicles not managed in accordance with an investment policy within the meaning of the AIFM Law. Conclusion

Based on the above criteria, a majority of the Luxembourg securitisation vehicles (including authorised securitisation vehicles) do not qualify as AIFs.

In any case, each Luxembourg securitisation vehicle bears the responsibility of a self-assessment as to whether or not it qualifies as an AIF under the AIFM Law in light of the FAQ.

CAPITAL MARKETS

AMENDMENTS TO TRANSPARENCY DIRECTIVE - DIRECTIVE 2013/50/EC -

Directive 2013/50/EC of October 22nd 2013 (the "Amendment Directive") which has amended the Transparency Directive was published in the Official Journal of the European Union on November 6th 2013. It entered into force as of November 26th 2013.The transposition period is 2 years and therefore Member States will have to comply with its provisions by November 26th 2015 at the latest.

We have previously written about some changes to the Transparency Directive in our September 2013 newsletter: http://www.bsp.lu/publications/newsletters-legal-alerts/bsp-newsletter-june-september-2013

Other changes to the Transparency Directive affected pursuant to the Amendment Directive include:

the creation of a web portal that will serve as the European electronic "access point" of regulated information, thereby improving access to regulated information. Such web portal will be developed by the European Securities and Markets Authority ("ESMA"); the reinforcement of sanctions for non-compliance with key provisions of the Transparency Directive, as amended; the enactment of new rules on when a decision about sanctions can be published, and whether competent authorities may delay such publication; the amendment of the definition of "issuers" to include issuers of non-listed securities represented by depository receipts admitted to trading on a regulated market as well as issuers that are natural persons; the clarification and simplification of the criteria for determining the home Member States of certain third-country issuers; the abolition of the requirement to disclose new loan issues has been abolished because it overlaps with similar requirements of Directive 2003/6/EC of January 28th 2003 on insider dealing and market manipulation (market abuse); the abolition of the requirement to communicate any amendment of an issuer's instruments of incorporation or by-laws to the competent authorities because it overlaps with similar requirements of Directive 2003/71/EC of November 4th 2003 on the prospectus to be published when securities are offered to the public or admitted to trading, as amended, and Directive 2007/36/EC of July 11th 2007 on the exercise of certain rights of shareholders in listed companies. ESMA Q&A ON PROSPECTUSES

On October 28th 2013, the European Securities and Markets Authority ("ESMA") published an update of its Questions and Answers (the "Q&A") on prospectuses revising a number of current market practices and addressing some new issues related to the implementation of Directive 2003/71/EU of November 4th 2003 on the prospectus to be published when securities are offered to the public or admitted to trading, as amended by Directive 2010/73/EU of November 24th 2010 (the "Prospectus Directive").

The Q&A includes revisions of two previous questions and answers dealing with:

pro-forma financial information (whereby ESMA has updated its illustrative examples of where issuers may be required to provide pro-forma financial information in a prospectus -question 51); and the level of disclosure concerning price information for share offerings (whereby ESMA considers the level of price disclosure in prospectuses for share offerings, the method disclosed in the prospectus to determine final price where it is not known, and when withdrawal rights are triggered - question 58). As these revised questions set out changes to current market practices, they are applicable only from January 28th 2014 to allow market participants sufficient time to adjust.

The Q&A addresses three new issues (which apply immediately), specifically:

the statement of auditors' agreement where a profit estimate is included in the prospectus (question 88); the application of the proportionate disclosure regime for prospectuses for rights issues that are not fully subscribed (question 89); and the proportionate disclosure regime for rights issues and admission to trading on a regulated market (question 90). Answer 88 clarifies that whilst agreement needs to be reached between the issuer and auditor, the "statement" (that agreement has been reached) may be made by (i) the auditor or (ii) the issuer/offeror/person asking for admission to trading. Furthermore answer 88 confirms ESMA's opinion that the statement means that the auditors do not expect the figures to change substantially, except in case of unforeseen events.

Answer 89 confirms that unless exemptions set out under article 3.2 of the Prospectus Directive apply, the proportionate disclosure regime for rights issues is not applicable to a subsequent offer to the public of shares not subscribed by the existing shareholders and/or not subscribed by pre-emptive rights holders. Answer 90 confirms that the proportionate disclosure regime for rights issues is applicable to the admission to trading on a regulated market of new shares neither subscribed by existing shareholders nor by pre-emptive rights holders but placed with other investors by using the exemptions provided in Article 3.2 of the Prospectus Directive.

The updated Q&A is available at the following link: http://www.esma.europa.eu/system/files/2013-1537_qa_prospectuses_-_20th_updated_version_0.pdf

ESMA STATEMENT ON SHAREHOLDER COOPERATION AND "ACTING IN CONCERT"

On November 12th 2013, the European Securities and Markets Authority ("ESMA") published a statement on shareholder cooperation and acting in concert under Directive 2004/25/EC on takeover bids (the "Takeover Directive"). The statement clarifies the extent to which investors may cooperate on corporate governance issues without being regarded as "acting in concert" and therefore running the risk of triggering an obligation to make a mandatory offer under the Takeover Directive.

Background

Under the law of May 19th 2006 on takeover bids (the "Takeover Law"), a person (natural or legal) who, after adding to his/her existing holdings of securities is entitled to exercise 33 1/3 % of the voting rights in a Luxembourg company that has securities admitted to trading on a regulated market in the EU/EEA, is required to make a public offer for the remaining securities at an equitable price. For the purpose of determining whether the threshold has been met, the voting rights attached to securities held or acquired by parties acting in concert with such person are included.

Persons "acting in concert" is defined as "natural or legal persons who cooperate with the offeror or the offeree company on the basis of an agreement, either express or tacit, either...