Raising funds in Luxembourg : securitization vehicle
Raising funds in Luxembourg: securitization vehicles
By "securitisation" is meant the operation by which a securitisation vehicle acquires or takes on risks linked to loans, goods or liabilities accepted by a third party by issuing transferable securities the value or yield of which is dependent on these risks. Practically speaking, a securitisation operation consists of bringing together a group of assets that produce a predictable cash flow or grant the right to a future cash flow, transforming these assets into securities (shares, bonds or other securities), whether nominative or bearer, and selling these securities to investors.
The most commonly cited example is the securitisation of a portfolio of loans from a financial establishment, but the field of activity for a Luxembourg securitisation vehicle is much wider than this.
Since the Luxembourg law allows the securitisation of many types of assets, risks, revenues and activities and since it makes securitisation accessible to all types of investor (institutional or individual), securitisation can just as easily facilitate the financing of a company or the management of personal or family wealth.
For investors, securities issued by a securitisation vehicle are relatively stable investments which offer a good return and are often guaranteed by a third party.
Furthermore, assigning assets to a securitisation organisation can offer a range of advantages, including access to capital at a reduced cost or without having to take out a bank loan or issue more shares. Securitisation also allows non-liquid assets to be converted into cash, to diversify the source and cut the cost of financing or simply to transfer risks to external investors.
An extremely wide range of assets can be securitised: securities (shares, loans, subordinated or non-subordinated bonds), risks linked to debt claims (commercial and other), movable and immovable property (whether tangible or not) and, more generally, any activity that has a real value or a future income.
Under Luxembourg law, a securitisation vehicle can be constituted either as a company or a fund.
A securitisation company must take the form of public limited company, a joint stock company, a private limited company or a cooperative with limited liability. It can create one or several compartments corresponding to a distinct part of its holding.
A securitisation fund has no legal personality and must be managed by a management company, which itself has to be a commercial company. It is formed from one or several joint ownership organisations or one or several fiduciary estates. In the former case, the fund is under a co-ownership regime and the latter is governed by trust and fiduciary contract legislation.
Luxembourg law ensures the tax neutrality of securitisation vehicles. Securitisation funds are treated as investment funds and the investors are taxed according to the rules in force in their country of residence. These funds are exempt from tax, but cannot benefit from double tax treaties agreed by Luxembourg.
Securitisation companies are fully taxable, but payments made to investors are fully tax deductible. Securitisation companies can benefit from EU directives and double tax treaties.
Securitisation organisations that continually issue transferable assets for the public must be approved and supervised by the financial sector supervisory authority, the CSSF.
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