On 9 February 2022, the Luxembourg Parliament adopted the bill n°7825 amending the Luxembourg law of 22 March 2004 on securitisation (the Bill).
The Bill aims to modernise the current Luxembourg securitisation landscape by, among others:
Broadening the sources of financing for securitisation undertakings
- The Bill allows a securitisation undertaking to finance itself by issuing “financial instruments”, rather than “securities”. This new term puts an end to current uncertainties surrounding the possibility of using certain foreign law governed instruments (such as the German Schuldscheine);
- The Bill also allows a securitisation undertaking to finance itself, in whole or in part, by way of loans, to be understood as any form of indebtedness that gives rise to a repayment obligation from the securitisation vehicle, under the condition that the return on such loans depends on the performance of the underlying assets.
Clarifying the authorisation requirements and the concept of issuance to the public
Luxembourg law formerly provided that any securitisation vehicle issuing securities on a continuous basis to the public must be regulated by the CSSF, but did not define when an issuance was made “on a continuous basis” and “to the public”, although the CSSF did give some guidance in its FAQs.
The Bill now states that:
- issuing “on a continuous basis” means carrying out more than three issuances of financial instruments to the public in the course of a financial year (the number of issuances takes into account all compartments of a securitisation entity);
- an issuance is made “to the public” if it meets the following cumulative conditions:
- i. the issuance is not made to professional clients as defined in the law of 5 April 1993 on the financial sector; and
- ii. the denomination of the financial instruments offered is less than EUR 100,000 (now matching the amount specified in the Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market); and
- iii. the financial instruments are not distributed by way of a private placement.
Allowing an active management of risk portfolio
Formerly, the law was silent on the possibility of a securitisation undertaking to actively manage securitised assets, and the CSSF FAQs indicated that any portfolio management should be limited to a prudent man's passive management. Now, the Bill allows an active management of a pool of securitised risks if such pool is made up of debt securities, claims or debt financial instruments and there is no issuances of financial instruments to the public.
Extending the scope of creditors that may benefit from a security interest over the securitised assets
The law formerly restricted the persons that could benefit from a security interest granted by a securitisation vehicle to investors, their fiduciary-representative or the issuing vehicle participating in the securitisation only; security interests given outside of these limited scenarios being null and void.
The Bill now enables the granting of collateral to secure any obligation relating to a securitisation transaction, which allows a securitisation vehicle to grant security interests or guarantees in favour of any party that is involved in the securitisation transaction, including persons that are not direct creditors/investors of the securitisation vehicle. The Bill also removes any sanction for granting a security interest in breach of this principle.
Clarifying the subordination rules
The Bill clarifies the rules on subordination as follows:
- Units of a securitisation fund are subordinated to other financial instruments issued by the securitisation fund and to the loans contracted by it;
- Shares, corporate units or partnership interests of a securitisation company are subordinated to other financial instruments issued by such securitisation company, to the loans contracted by it, as well as to the beneficiary shares issued by it;
- Beneficiary shares (parts bénéficiaires) issued by a securitisation company are subordinated to debt financial instruments issued by such securitisation company and to the loans contracted by it;
- Non-fixed income debt financial instruments issued by a securitisation undertaking are subordinated to fixed income debt financial instruments issued by it.
Securitisation undertakings, however, may derogate from the above rules either contractually or under their constitutional documents.
Adding new corporate forms under which a securitisation undertaking may be set up
The Bill allows a securitisation vehicle to be set up under the form of a general partnership (société en nom collectif), a common limited partnership (société en commandite simple), a special limited partnership (société en commandite spéciale) or a simplified public limited company (société par actions simplifiée).
Requiring securitisation funds to register with the Luxembourg trade register
The Bill now requires securitisation funds to be registered with the Luxembourg trade register. This will provide investors with an additional way of identification by the attribution of an RCS number, but will also avoid certain administrative issues, including the inability for a securitisation vehicle to list its securities on a stock exchange.
The securitisation funds incorporated before the entry into force of the Bill will have to comply with this requirement within 6 months of the entry into force of the Bill.
Clarifying the rules relating to the drawing up and publication of annual accounts to securitisation vehicles under the form of a partnership
The Bill introduces the obligation for securitisation vehicles set up under the form of a general partnership (société en nom collectif), a common limited partnership (société en commandite simple) or a special limited partnership (société en commandite spéciale) to draw up and publish annual accounts in accordance with the provisions of the law of 19 December 2002 on the register of commerce and companies and the accounting and annual accounts of companies.