Luxembourg Parliament has voted new Securitisation Law
10 February 2022
The Luxembourg Parliament (Chambre des Députés) voted the new bill amending the Luxembourg law of 22 March 2004 on securitisation (the "Luxembourg Securitisation Law") on 9 February 2022. The amended Luxembourg Securitisation Law brings increased flexibility to Luxembourg securitisation vehicles by introducing a series of major changes. Please also see our newsflash of 1 June 2021 providing more information on the original bill.
There is a series of major amendments to the Luxembourg securitisation regime that market participations intending to set up a Luxembourg securitisation structure should notice:
- SVs will be allowed to enter into loan agreements with their investors instead of issuing securities exclusively
So far SVs have been required to raise proceeds for the acquisition of the assets by issuing securities (valeurs mobilières) and could only conclude loan agreements subject to certain restrictions. This limitation has been lifted now since the amended Luxembourg Securitisation Law allows SVs to both (i) issue financial instruments and (ii) grant loans with the purpose to finance, wholly or in part, the acquisition of the underlying assets. Consequently, Luxembourg SV have ceased to be mere issuance vehicles.
- Granting of securities to third persons will be allowed
Under the former regime SVs were only allowed to grant security interests in very restricted situations. This meant that an SV could only provide security over the securitised assets if the security was being granted in order to cover the SV's own obligations arisen with respect to the securitisation or in favour of its investors. Consequently, there was no possibility to provide security to a third person which was not an investor or a party in the securitisation towards whom the SV had undertaken any obligations. Any security provision not complying with this restriction was automatically declared null. The reform has now lifted this restriction to a considerable extent as SV will be allowed to secure the obligations of other persons, and not only their own, as long as such obligations are related to the securitisation transaction.
- Active management of the securitised assets will be possible
Furthermore, an SV will now also be allowed to actively manage its portfolio of securitised risks provided all its financial instruments relating to the portfolio in question have been subscribed by way of private placements, putting an end to the requirement that SV's could only manage their assets in a passive manner. Such active management can also be done by an external entity contracted for such purpose. This means that it will be acceptable that an additional risk, i.e. the competence and practical day-to-day management of the portfolio by a portfolio manager, is de facto added to the risks which are being securitised. This is indeed a major change to the former system.
- Direct and indirect holding of securitised assets
The new Luxembourg Securitisation Law now also clarifies that SVs are allowed to acquire and hold the securitised assets directly or indirectly, i.e. through intermediate holding vehicles. Consequently, the holding of the securitised assets can be done by way of the interposition of a subsidiary, partly or wholly, held by the SV.
- Clarity with respect to the CSSF authorisation requirement for SVs
The rule that a fourth public offer made by an SV on an all-compartment basis per financial year will trigger the CSSF authorisation requirement (which was previously only expressly set out in the FAQs on securitisation issued by the CSSF) has now explicitly been included in the amended Luxembourg Securitisation Law. In other words, an SV will continue to be allowed to make three public offers in a financial year without having to be authorised by the CSSF as it would not be deemed to be making offers to the public on a continuous basis. It must however be noted that this rule applies to the SV as a whole and cannot be broken down to the various compartments in a multiple-compartment structure. In this respect, there will be no specific changes from the former approach. This means that SVs will continue not to be restricted in the number of private placements they do.
As has been the case all offer exemptions under the Prospectus Regulation are applicable in this respect and need not be taken into account with respect to the question whether the SV will need to be authorised by the CSSF, i.e. whether it is engaging in offers to the public on a continuous basis.
Furthermore, it has now been specified that the placement of financial instruments with a per unit denomination of at least 100 000 (in contrast to the EUR 125 000 the CSSF's FAQs on securitisation refers to) is not a public offer (in line with the Prospectus Regulation).
- Additional types of corporate forms for SVs
The new Luxembourg Securitisation Law also introduces additional corporate forms available for the SVs: unlimited companies (sociétés en nom collectif) (SENC), common limited partnerships (sociétés en commandite simple) (SCS), special limited partnerships (sociétés en commandite spéciale)(SCSp) and simplified public limited liability companies (sociétés par actions simplifiées) (SAS).
Finally, the new Securitisation Law now includes specific rules on statutory subordination determining the rank of various instruments which an SV can issue. However, it is possible to deviate from this legally stipulated ranking by the articles of association of the SV or by way of other contractual means.
It is interesting to note that the topic of direct lending and the criteria to be complied with have not been expressly taken up by the new law. In this respect, the FAQs issued by the CSSF should continue to provide the necessary guidance as has been the case so far.
For more information please feel free to contact our Luxembourg securitisation team.
