This has been strengthened by the modernisation of the Luxembourg Securitisation Law early 2022 which now also allows for active management of debt portfolios and the refinancing through loans.
In the different European statistics, Luxembourg usually ranks first or second with regards to the number of securitisation vehicles and transactions. We are optimistic that the securitisation market will further grow and that Luxembourg will keep its position as prime location for securitisation transactions in Europe.
One of the key advantages of Luxembourg is the concept of “compartments”, segregated parts of assets and liabilities within one entity. Contrary to other jurisdictions, in Luxembourg this segregation of assets between compartments is defined by law and we often observe structures with more than ten compartments, some even several hundred.
The Luxembourg Securitisation Law is an opt-in law and provides a wide definition for securitisation, namely any type of assets or risks can be securitised and refinanced by the issuance of financial instruments. This is significantly different to the definition of the European Securitisation Regulation which refers to the transfer of credit risk only and requires the refinancing to be split into multiple subordinated tranches. The Luxembourg Securitisation Law caters for this type of securitisation but also goes beyond.
Furthermore, there is no limitation on the investor basis, investments into a Luxembourg securitisation vehicle are open to all types of investors. A direct supervision by the Luxembourg regulator CSSF is only required when a continuous issue to the public occurs, which is not often the case.
All in all, Luxembourg securitisation vehicles are a very efficient tool for financing or creating investment opportunities at a reasonable cost and quick time-to-market.
The Luxembourg Securitisation Law offers an attractive regulatory framework for setting up workable securitisation structures in Luxembourg at reasonable cost. The key features which make the Luxembourg Securitisation Law attractive in practice are summarised as follows:
Enormous flexibility in entity establishment from a cost and structural point of view;
Broad bankruptcy remoteness mechanisms;
Qualified service providers in Luxembourg;
Such enormous flexibility is also the result of having studied the different securitisation transactions effected on the Luxembourg market since the establishment of the Securitisation Law. In addition to the attractiveness of the Luxembourg Securitisation Law, the Luxembourg market offers some soft factors which should not be underestimated:
The Luxembourg Securitisation Law of 22 March 2004 historically allowed securitisation companies to achieve tax neutrality as the commitments towards shareholders and creditors were fully tax deductible without any limitations.
However, since the transposition of the Anti-Tax Avoidance Tax Directive 2016/1164 of 12 July 2016 into Luxembourg tax law as from 1 January 2019, securitisation companies can be subject to interest limitation rules that can jeopardize their tax neutrality.
When setting up a securitisation structure, the clients and their advisors should look at the different drivers that can influence the choice of the securitisation structure that are mainly the following:
PwC can help clients to choose the most tax efficient securitisation structure among the different alternatives that are offered by the Luxembourg Securitisation Law of 22 March 2014 (i.e. securitisation companies, securitisation companies with fiduciary arrangements or securitisation funds) in order to maintain a tax neutrality at best or at least to mitigate the adverse tax consequences arising from the introduction of the interest limitation rules.
Following the positive feedback we received about our first survey on the Luxembourg securitisation market in 2020, we have asked your opinion again in 2021 and we are now happy to present the results of this year’s survey.
Since 1 January 2019, the EU Securitisation Regulation (the “Regulation”), is applicable to EU Securitisation transactions whose securities (or other securitisation positions) are issued on or after that date.
We expect digitisation to remain one of the top priorities for the Luxembourg financial centre for the upcoming years. Many banks and other financial services companies have already started their transformation and more will follow suit.
Digital transformation can lead to new opportunities, but new digital challenges need to be tackled. In securitisation, one of the biggest challenges is the complexity of the business.
Our team can concentrate on what really matters: auditing and looking at the complexity of your business. As a key enabler, technology is at the heart of the PwC audit process. We continually invest in emerging technologies to bring additional value to our clients. Our specialised tools enable us to produce and share meaningful results and new insights.
Our PwC Luxembourg Securitisation Core Group consists of 16 Partners & Directors leading more than 80 Securitisation experts. Whatever your requirements, our dedicated audit, tax and consulting teams have the necessary experience to guide you through the realms of the Luxembourgish market as well as local and European regulations and will make achieving your goals their number one priority.
Holger von Keutz
Partner & Securitisation Leader, PwC Luxembourg
Tel: +352 49 48 48 2383
Partner, PwC Luxembourg
Tel: +352 49 48 48 3299
Partner, PwC Luxembourg
Tel: +352 49 48 48 3148
Partner, PwC Luxembourg
Tel: +352 49 48 48 2647