Securitisation in Luxembourg, explained
The Luxembourg legislator has recognised the big success of securitisation transactions in other jurisdictions — like the US and other European nations. This is what experts believe in terms of the Securitisation Law of Luxembourg, which was tackled during a webinar organised by Bolder Group and a partner.
The recently-held webinar covered the legal forms of Securitisation Vehicles (SVs), compartments, set-up process, BCL reporting and more. Bolder’s Tim van Santen (Commercial Director Europe) and Nicolas Charbonnet (Head of Corporate and Governance Luxembourg) were present as speakers.
If you missed the discussion last 16 March, here are key points you need to know about securitisation in Luxembourg:
Background of the Securitisation Law
• It was developed as a legal framework for new financing techniques in the early 2000s
• The Law was enacted on 22 March 2004 and amended in the course of 2022
• To align with the EU Securitisation Regulation, the Act was amended in 2018
• The CSSF regulates all SVs and SV transactions in Luxembourg
• Luxembourg is a popular jurisdiction for securitisation SPVs, due to its favourable tax and regulatory frameworks
What is a securitisation SPV?
• Under the Law, securitised vehicles must cumulatively:
- acquire or assume, whether directly or indirectly, another undertaking, risks relating to claims, assets, or obligations which third parties assumed or are part of the third parties’ activities; and
- issue financial instruments or contracts for the whole or part of any kind of loan, the value or yield of which depends on such risks.
• There are different types of securitisation SPVs in Luxembourg, including among others SICAR and SCA. Securitised vehicles can be used to cover various asset classes, such as mortgage and auto loans. According to Charbonnet, “We can see from a practical point of view that historical assets like loans are still the most important part of securitization ”
What are the benefits of SVs?
- Generating earnings
- Creating liquidity
- Providing efficient access to capital markets
- Minimising issuer-specific limitations on ability to raise capital
- Diversifying and targeting funding sources, investor base, and transaction structures
- Raising capital to generate additional assets
- Higher returns
- Tailored investment sources
- Possible broader combinations of yield, risk, and maturity
- Portfolio diversification
- Better credit terms
Setting up a securitisation vehicle in Luxembourg
A securitisation vehicle is usually an orphan company, which can be set up in the form of a company or in a contractual form, with no legal personality. A management company may manage the vehicle.
The SV can be either unregulated (cheaper and faster to set up) or regulated (which allows continuous issuance to the public).
It can also create compartments that represent distinct parts of the assets and liabilities, enabling the vehicle to undertake operations and targeting different investors. The compartments may be liquidated without affecting other compartments and the vehicle itself.
The SV can opt to manage risks on its own or through a third-party manager, who is usually an investment manager or collateral advisor.
For a comprehensive guide on setting up a Luxembourg securitisation vehicle, please contact Tim or Nicolas.
Banque centrale du Luxembourg (BCL) reporting
- Initial registration: To be given its BCL identification code, a Luxembourg SV must inform the BCL of its existence within a week after incorporation. The BCL also requires, in Excel format, legal information about the SV, which includes the nature of securitisation, ISIN codes of securities and information about the reporter.
- Periodic reporting: The SV must forward to the BCL regular information about assets, liabilities, and transactions via the following reports:
- Quarterly statistical balance sheet
- Quarterly transactions and write-offs/write-downs on securitised loans
- Monthly security by security reporting
The BCL reminds SVs of report deadlines through a published calendar on its website.
Charbonnet clarifies that an entity may be exempted from statistical reporting if its total asset does not exceed the current exemption threshold of EUR 70 million.
Bolder Group is a global firm providing fund, governance, and corporate services. We are present in major cities in the world, including Luxembourg. If you have any questions about setting up securitisation SPVs in Luxembourg, please reach out to us, so we can assist you further.