The main changes that Bill No. 7825 (the "Bill") proposes are as follows:
- The financing of a transaction is no longer limited to securities but is open to any financial instrument, i.e. including promissory bills or loans, as long as the amount repayable depends on the risks securitized (a provision in alignment with the European Securitization Regulation). This will reduce the legal formalities and the cost of setting up these securitizations.
- The flexibility of compartmentalization and the choice to create a securitization company or a securitization fund.
- The legal form options that can be used for securitization companies are expanded to include general partnership (GP), limited partnership (LP), special partnership (SP) and simplified joint stock company (SAS). This extension of the choice of legal form will make securitization even more attractive to investors.
- The confirmation that a securitization vehicle must be subject to CSSF supervision when it makes a continuous public offering, as already interpreted by the CSSF, by slightly modifying the cut-off threshold for public issues from 125,000 to 100,000 euros. Consequently, only securitization vehicles issuing more than three times a year non-private placements with a nominal value of less than EUR 100,000 to non-professional investors would then have to be authorized by the CSSF, and failure to do so would henceforth be subject to sanctions.
- A clear definition of the treatment and distribution of profits and losses of equity-financed sub-funds, indicating that this should be done on a sub-fund basis.
- Active management (by the vehicle or a third party) will now be permitted for Luxembourg securitization vehicles for risks related to bonds, loans or other debt instruments, unless the financing instruments are issued to the public.
- A definition of the legal subordination of the different types of debt and equity instruments issued by a securitization vehicle.
- A securitization vehicle will be able to grant guarantees on assets to parties that are involved in a securitization transaction but are not direct creditors of the securitization vehicle.
- Securitization funds (and their liquidation) will have to be registered with the Luxembourg Trade and Companies Register (Registre de Commerce et des Sociétés (RCS)), with existing securitization funds benefiting from a transitional period of six months after the entry into force of the future law to register.
This Bill therefore further clarifies the existing legal framework and adapts it to the current requirements of the securitization market.