On 22 March 2004 Luxembourg enacted the Luxembourg law on securitisation (“the Securitisation Law”), which formally sets up an attractive legal, tax and accounting framework governing asset securitisation and introducing a securitisation vehicle in Luxembourg. The Securitisation Law enables that securitisation transactions can take place in Luxembourg, in a flexible manner with minimal formalities. It is therefore not surprising that since the introduction of the Securitisation Law the use of a Luxembourg entity for securitisation transactions has become very popular.

Under the Securitisation Law, a securitisation transaction is broadly defined as a transaction under which a securitisation vehicle acquires or assumes (from the originator) risks linked to certain receivables or other assets. This acquisition or assumption of risk is financed by the issue of securities (e.g. shares, bonds or notes) to public or private markets. The value of the securities issued depends on such risks.

Due in part to the general nature of the allowable receivables or assets, the following should serve as a partial, though not exhaustive guide: Insurance linked receivables and derivatives, carbon credits, leases, mortgages, loans, fund holdings, distressed debt, commercial receivables / factorings, ships, RMBS, CMBS, ABCP, CDOs, CLOs, CBOs, CMOs, REITs, structured products, packaged esoteric derivatives, etc. and a multitude of synthetic constructions.

Securitisation vehicles performing securitisation transactions that fit the definition of the Securitisation Law, and whose articles of incorporation provide that they are subject to the Securitisation Law, benefit from this specific framework.

Bankruptcy remote mechanism that ensures that investors and creditors obtain a preferential right to the securitised assets are one of the most attractive benefits of using a Luxembourg securitisation vehicle.  Furthermore, it is a very flexible vehicle, subject to little formalities and tax neutral.

For more information on Securitisation, please download our information memorandum on Securitisation in the Resources section.