Luxembourg Securitization Vehicles

DEFINITION

Securitization is a financing process by which an originator transfers one or more assets or risks to a Securitization Vehicle in exchange for cash. The securitization vehicle is financed by issuance of securities backed by the assets (collateral) transferred and the income generated by those assets.

OBJECTIVE, PURPOSE

Securitization in Luxembourg is a tool, which enables the transferor (fund or company or special purpose vehicle - SPV) to acquire or assume risks linked to receivables, to any type of assets or to any commitment assumed by third parties or linked to activities executed by third parties. The securitization legal entity acquires or assumes such risk by issuing any type of securities the value and yields of which are linked to these securitized assets.

Cash flow producing illiquid assets can be pooled together into an investment vehicle through the use of securitization (SPV). Cash flows generated by the pool of assets are then redirected to support payments to instruments issued by the securitization vehicle to capital markets.

Using securitization, companies or individuals are able to separate some assets from their wealth, place them with a Luxembourg securitization vehicle and thus avoid having to undertake the risk of holding or managing such assets. Investors therefore finance the securitization vehicle by issuing securities. This way they are the ones bearing risks in connection with the assets held by that entity.

LEGAL FORM

SECURITIZATION FUNDS

Securitization funds are not legal entities. They are managed by a management company. They are set up in the form of a fiduciary estate separate from the management company, which must be a Luxembourg resident (Sàrl or SA, i.e. a private or public limited company). Assets and liabilities of such fund must be separate from those of the management company. A securitization fund may be made up of several sub-funds, which are independent from one another.

SECURITIZATION COMPANIES

Securitization companies must be incorporated under the form of a public limited company (société anonyme), a partnership limited by shares (société en commandite par actions), a private limited liability company (société à responsabilité limitée) or a cooperative company organized as a public limited company (société cooperative organisée comme une société anonyme).

Articles of incorporation of a securitization company may authorize its board of directors/ managers to set up one or several...