The Draft Law will build on the success of the former Securitisation Law and continue to incorporate legal certainty and flexibility. As such, the Draft Law is not a revolution of the understanding of Luxembourg securitisation vehicles, but rather a development towards changed demands in the use of such vehicles and also increased flexibility compared to other jurisdictions.
The key modifications are:
The refinancing of a transaction is no longer limited to securities but is open to any financial instrument, i.e. including promissory notes or loans, as long as the repayable amount depends on the securitised risks. This aligns the Draft Law with the European Securitisation Regulation, which does also not require financing solely in the form of securities. Furthermore, this will reduce the legal formalities and the cost to set up those securitisations.
The flexibility of compartmentalisation and the choice to create either a securitisation company or a securitisation fund remains an integral part in the Draft Law.
The options of legal forms that can be used for securitisation companies are enlarged by “société en nom collectif ”, “société en commandite simple”, “société en commandite spéciale” and “société par actions simplifiée” which have been established in Luxembourg law since the adoption of the Securitisation Law in 2004. This will make securitisation even more attractive for investors such as private equity houses or family offices who already extensively use partnership structures in Luxembourg.
The Draft Law confirms that a securitisation vehicle must be subject to CSSF supervision, when it issues to the public on a continuous basis. It basically enacts the CSSF's interpretation of these two criteria (cf. CSSF FAQ2), slightly amending the denomination threshold for public issuances from EUR 125,000 to EUR 100,000. Therefore, only securitisation vehicles issuing more than three times per year non-private placements with a denomination below EUR 100,000 to non-professional investors need to be authorised by the CSSF should the Draft Law be adopted. A non-respect of application for authorisation by the CSSF in such cases is now subject to sanctions.
The treatment and distribution of profits and losses of equity financed compartments is now clearly defined in the Draft Law, stating that this has to be done on a compartment basis.
With the Draft Law, active management (by the vehicle or a third party) is now allowed for Luxembourg securitisation vehicles for risks linked to bonds, loans or other debt instruments, except if the financing instruments are issued to the public. This might enable Luxembourg to attract more CDO/CLO structures which have historically been set up in other jurisdictions.
The Draft Law also defines the legal subordination of different types of debt and equity instruments issued by a securitisation vehicle.
The Draft Law allows a securitisation vehicle to grant security interests over the assets to parties that are involved in a securitisation transaction but are not direct creditors of the securitisation vehicle.
The Draft Law further clarifies that securitisation funds (and their liquidation) have to be registered with the Luxembourg business register, with existing securitisation funds having to register within six months after entering into force of the Draft Law.
We are of the opinion that this is very good news for the Luxembourg securitisation market and will assist in its continued growth. We would be happy to accompany you in your securitisation project and remain at your disposal.
Holger von Keutz
Partner, Securitisation Leader, PwC Luxembourg
Tel: +352 49 48 48 2383
Director, PwC Luxembourg
Tel: +352 49 48 48 2647