Securitisation in Luxembourg
Luxembourg enacted the securitisation law in March 2004 and since then over 1,000 securitisation vehicles have been created.
These securitisation vehicles are outside the scope of AIFMD, although there was some debate as to whether securitisation vehicles should be subject to the AIFM directive. Only securitisation vehicles that issue securities on a continuous basis to the public are subject to regulation by the CSSF.
As of May 2017, there were 34 regulated securitisation vehicles in Luxembourg.
Natalia Caldare, Securitisation Structurer at Commerzbank shares some insights on the future of securitisation in Luxembourg.
What are the advantages of securitisation ?
In an increasingly regulated financial market with punitive charges related to balance sheet usage, the merits of securitisation as an instrument that transfers title together with the risks of an asset from one party to another, have become increasingly important. In addition, distribution/reallocation of risk, liquidity, more favourable cost of financing for the originator and a potential higher rating of debt issued by an SPV are advantages that are still relevant for SPV issuances.
Sources: Association for Financial Markets in Europe, 2016
What are the strengths of Luxembourg for this kind of vehicle?
The securitisation Law of 2004 laid out a solid and secure platform for securitised vehicles. The ring-fenced compartmentalised structures with non-recourse and non-petition provisions treating each compartment as a separate part of the balance sheet of the SPV, wide range of assets allowed to be securitised, VAT exemption on management of these vehicles, extensive network of DTTs for the reduction of WHT and ease of communication with the regulator are all strong points worth considering when deciding on Luxembourg as the jurisdiction for an SPV.
What is your outlook on securitisation for the coming years?
Given a historically low interest rate environment, combined with pressure to improve the ratio of capital set aside for loans the lenders - especially in Europe - will continue to suffer in the near term. Securitisation is one solution that could help in trimming loan portfolios by repackaging and selling them to yield-hungry investors such as asset managers, insurance companies or pension funds. Furthermore, with increased distribution and enhanced post-crisis regulations, I expect the retail segment of the market to become more active investors in securitised products that offer higher yields.