The amendments to the law of 22 March 2004 on securitisation (the “Securitisation Law”) proposed by the much awaited draft law 7825 (the "Draft Law") are an encouraging development for investors, originators and sponsors alike, since they promise a more flexible and secure framework and aim at satisfying market needs.
On 9 February 2022, Luxembourg Parliament (Chambre des Députés) adopted the Draft Law and it should be a matter of days until the amendments to the Securitisation Law (the Securitisation Law so amended, the “Amended Securitisation Law”) become effective. As a reminder, on 28 May 2021 we published a Newsflash on this highly anticipated piece of legislation.
We are preparing a comprehensive briefing on the Amended Securitisation Law. In the meantime, you will find below a summary of the key changes:
KEY CHANGES IN THE SECURITISATION LAW
Currently, securitisation vehicles ("SVs") need to fund themselves with "securities” (valeurs mobilières). Beside the narrow scope of the latter term, it is also not defined in the Luxembourg legal framework, which proved to be sometimes a source of uncertainty. The Amended Securitisation Law will allow SVs to fund themselves with “financial instruments” (instruments financiers), as defined under article 1 of the law of 5 August 2005 on financial collateral arrangements, as amended, but also, partially or totally, with loans, provided that such loans' value or return track the underlying assets' performance. This will broaden the funding possibilities and enhance legal certainty in the securitisation field.
SVs will be able to actively manage a securitised debt portfolio, provided that the securities to be issued by SVs are not available to the public.
A new set of rules on legal subordination applicable to the financial instruments issued by SVs will be implemented. SVs may derogate from these rules either contractually or under their constitutional documents.
The CSSF's criteria for the public issuance of financial instruments are incorporated into the Amended Securitisation Law. Until now, it was only provided for as a guidance in the CSSF's FAQ.
The Amended Securitisation Law will allow for financial statements of an equity-financed compartment to be approved only by such compartment’s shareholders; and the profits and distributable reserves of equity-financed compartments may be calculated on a compartment basis.
In addition to the other legal forms already envisaged under the Securitisation Law, SVs will also be able to 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).