The Luxembourg parliament has voted on 9 February 2022 a major bill amending and modernizing the law of March 2004 on securitization (the "New Law"). The New Law has reset the legal framework for securitization transactions in Luxembourg and is expected to completely re-boost the Luxembourg position on the securitization market with a wide opening for the EU but also US actors in the actively managed CDO/CLOs field. In short:
Active Management: SVs can now directly or indirectly actively manage a portfolio of debt security, loans, debt financial instruments or receivables as long as the securitization offer is not made to the public. In other words CDO/CLOs structures can now be established in Luxembourg.
Financing: SVs can be fully or partially financed by loans or credits (in the broadest sense).
Security: SVs can grant security to secure obligations of a third party linked to the securitization transaction (i.e. not necessarily a creditor).
Issuance of Financial Instruments: SVs can issue all type of financial instruments, securities and other instruments, including, but not limited to shares in companies and other securities equivalent to shares in companies, participations in companies and units in collective investment undertakings, bonds and other forms of debt instruments, certificates of deposit, loan notes and payment instruments; securities which give the right to acquire shares, bonds or other securities by subscription, purchase or exchange.
Public Offering: Incorporation of the soft law regarding the regulated or unregulated status of SVs. 3 clear cumulative conditions to qualify an offer made to the public falling under the supervision of the CSSF i.e. (i) issuance is not made to professional investors (as defined in the Luxembourg Law of 5 April 1993 on the financial sector, as amended); (ii) the denominations of the financial instruments is less than EUR 100,000; and (iii) the issuance is not made by way of private placement.
Extended use of legal forms: SVs can use all types of corporate legal forms including the Luxembourg transparent for tax purposes SCSp (special limited partnership) rendering now securitization transactions attractive for PE houses and family offices.
Legal Subordination: Creation of a substitute legal subordination in the absence of a contractual one.
Accounting Rules: The New Law clarifies the accounting rules applicable to compartmentalized structures.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
