Insights

The draft law 7825 (the “Draft Law”) which amended the law of 22 March 2004 on securitisation (the “Securitisation Law”) was adopted on the 9^th February 2022 by the Luxembourg Parliament and the amendments to the Securitisation Law (the “Amended Securitisation Law) is now effective. The Amended Securitisation Law brings with it well needed changes which have long been requested by the market as investors, managers and sponsors have seen the need for a more flexible and structured legislative framework.

Amongst the main legislative amendments, we find the below:

1. 1. Alternative Funding Mechanisms for Securitisation Vehicles
      The Amended Securitisation Law permits securitisation vehicles to fund themselves with broader funding methods as the term “securities” has been replaced with the term “financial instruments” as defined under Article 1 of the Law of 5 August 2005 on Financial Collateral Arrangements.

      This enhances legal certainty, whilst broadening the refinancing options of a transaction by also including financial instruments, promissory notes and loans (as long as the repayable loan tracks the underlying assets performance).

1. 1. Active Management of Assets
      The Amended Securitisation introduced the possibility for a securitisation vehicle to (by the vehicle itself or by a third party manager) actively manage a securitised debt portfolio, provided that the any securities issued by the securitisation vehicle are not made available to the public.

      This amendment is expected to make Luxembourg an attractive jurisdiction for CDO/CLDO structures.

1. 1. Supervisory and Registration Clarifications
      The Amended Securitisation Law requires that securitisation vehicles that issue securities to the public on a continuous basis, must be authorised and supervised by the CSSF.

      Securitisation vehicles issuing non-private placements more than 3 times in any given year with a denomination below Euro 100,000 to non-professional investors need to first seek CSSF authorisation. Furthermore, the Amended Securitisation Law highlights that any securitisation funds need to be registered with the Luxembourg trade and companies register (Registre de Commerce et des sociétés).

1. 1. Increased Legal Forms
      Apart from the already existing permitted legal structures, under the Amended Securitisation Law, securitisation vehicles can now also take the form of an unlimited company (société en nom collectif), common limited partnership (société en commandite simple), special limited partnership (société en commandite spéciale) and simplified limited company (société par actions simplifiée).

      This amendment is expected to make securitisation vehicles more attractive to investors such as private equity structures and family offices that are already familiar with Luxembourgish partnership structures.

1. 1. Security Interests
      The Amended Securitisation Law permits securitisation vehicles to grant collateral to secure any obligation relating to securitisation transaction, which will permit a securitisation vehicle to grant security interests and/or guarantees in favour of any party that is involved in the securitisation transaction, including persons that are not direct creditors of the securitisation vehicle.

The Draft Law brings about a well needed change in the securitisation framework in Luxembourg and also makes Luxembourg an ideal jurisdiction for such structures.