Luxembourg Corporate - Unregulated Securitisation Vehicles

Flexible private/intermediate portfolio holding or investment vehicles

Introduction

With over 1,000 securitisation vehicles (SVs) and thousands of related compartments, the Luxembourg securitisation market enjoys a continuous and steady growth, and it is forecast that this well-established trend will continue and gain further strength in the coming years. As a leading hub in Europe for securitisation and structured finance transactions, Luxembourg indeed offers a pragmatic and secure legal and tax regime which allows the securitisation of virtually an unlimited range of risks, through different forms of SVs with reduced complexities and almost full tax neutrality.

The regime that has developed in practice arising from the statutory framework created by the Luxembourg Securitisation Law of 22 March 2004, as amended from time to time (the Securitisation Law) and the regulatory guidance issued by the Luxembourg Financial Sector Supervisory Authority (the CSSF) in the form of published Q&As has therefore led to a widespread market usage of SVs to cover a range of activities from (i) regulated, continuously offered securities to the public, through (ii) institutional capital raising and (iii) private, unregulated securities-issuing investment vehicles.

The Luxembourg SV is indeed used for a diverse range of economic purposes, including:

structures that would be recognised as classic capital markets structures set up with a view to being bankruptcy remote, taking on either a true sale assignment or a synthetic exposure to a portfolio of numerous assets which are secured to a fiduciary for the benefit of the securities' holders whose proceeds of issue financed the original portfolio acquisition; private vehicles that are simply issuing securities whose value or yield is dependent on the performance of one or a number of portfolio assets; or intermediate portfolio holding vehicles for non-EU funds holding debt or other receivables. What is securitisation under Luxembourg law?

Securitisation under the Securitisation Law means the transaction by which a SV (cumulatively):

acquires (true sale securitisation) or assumes (synthetic securitisation), directly or through another undertaking, risks relating to claims, other assets, or obligations assumed by third parties or which are inherent to all or part of the activities of third parties; and issues securities, whose value or yield depends on such risks. Securitisable risks

Risks relating to all types of assets, whether movable or immovable, tangible or intangible, as well as those relating to obligations assumed by third parties or inherent in all or part of third-party activities, may be securitised. There are no portfolio diversification requirements, so that SVs are able to hold single asset portfolios where appropriate.

Securitisation may occur either through a true sale under which assets are assigned to or acquired by the SV or through a "synthetic" securitisation, where only the risk linked to the portfolio assets is transferred.

Financing of the SV

Aside from the fact that a SV as a company will have a share capital and corresponding issued equity, it shall finance its securitisation operations through the issue of securities. There is neither a legal definition nor any prescription as to the characteristics of such securities, simply that their yield or value accretion must derive from the securitised risks. On this basis the following is to be noted:

securities subject to foreign law which are recognised as "securities" under applicable law or which constitute securities within the meaning of the Markets in Financial Instruments Directive (MiFID) are deemed to be securities under the Securitisation Law; in general, securities issued by Luxembourg SVs are debt securities (but shares are authorised too)...