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Luxembourg securitisation vehicles

The Law defines securitisation as "an operation by which a securitisation vehicle acquires or takes on, directly or through the intermediary of an other entity, the risks connected to claims, to other goods, or to liabilities of third parties or inherent to all or part of the activities carried out by third parties by issuing securities whose value or return depends on such risks".

Different forms of SVs

Securitisation vehicles are defined by the law as being entities, which carry out a securitisation in its entirety or participate in such transaction by assuming all or part of the securitised risks (the "acquisition entities") or by issuing securities for the purpose of the financing thereof (the "issuing entities"), subject to their constitutive documents, manage- ment regulations or issuing documents specifying that they are subject to the provisions of the Law.

Under the Law, it is possible to create SVs as a securitisation company or as a securitisation fund.

Securitisation Companies

Securitisation Companies can take the form of a société anonyme, a société à responsabilité limitée, a société en commandite par actions or a société coopérative organised as a société anonyme.

Securitisation Funds

A securitisation fund does not have a legal personality and may be organised either as one or several co-ownership funds or one or several fiduciary estates and will be managed by a management company.

SVs with compartments

In order to create appropriate segregation of assets and liabilities, the articles of incorporation of a securitisation company may give the board of directors the right to create one or more compartments each corresponding to a distinct part of the securitisation company’s assets.

A securitisation fund may also be split into several compart- ments, each of which having different applicable rules and different characteristics or investment strategies customized to specific investors profile.

The rights of recourse of investors and creditors are usually limited to the assets of the SV. However, where such rights relate to a specific compartment or have arisen in connection with the creation, the operation or the liquidation of a specific compartment, their recourse is limited to the assets of the relevant compartment.

Between investors, each compartment is treated as a separate entity, unless otherwise provided for in the constitutional documents of the SV.

An SV may issue securities the value or yield of which is linked to specific compartments.

Each compartment of an SV may be liquidated separately, without triggering the liquidation of another compartment.

Regulated SVs

Luxembourg SVs are in principle unregulated entities and are not subject to any authorization or prudential supervision, unless the SV issues securities to the public on a continuous basis. In the latter case, the SV must be approved by the Luxembourg regulator of the financial sector (the "CSSF").

According to the CSSF, an SV is issuing securities on a continuous basis if it makes "more than three issues per year".

Regarding the second criteria, i.e. issuing securities to the public, an issue of securities to professional clients as defined in

Annex II of Directive 2004/39/EC of April 21, 2004 on markets in financial instruments (the "MiFI Directive" or "MiFID") is not considered by the CSSF as an issue to the public for the purpose of the Law.

Securities issued with a nominal value of at least EUR 125,000 each, are considered as not being issued to the public.

The assessment of the above criteria must take into account distribution channels used for the placement of the securities (look-through approach). A SV can also be created in a contrac- tual form as a securitisation fund. Indeed, the subscription of securities by an institutional investor or financial intermediary with a view to a subsequent placement of such securities with the public does constitute an offer to the public for the purpose of the Law (CSSF – Securitisation FAQ – Question Nr. 4).

Whereas unregulated SVs are not required to appoint a custodian bank, regulated SVs have to entrust the custody of their liquid assets and securities to a credit institution established or having its registered office in Luxembourg.

In a two-level structure where the acquisition entity is located in Luxembourg and the issuing entity is located in another jurisdiction, the acquisition entity does not become subject to prudential supervision even if the issuing entity is issuing securities to the public on a continuous basis.

Reporting obligations

and accounting

An SV has to notify the Luxembourg Central Bank of its existence and to report certain data on a quarterly basis in accordance with (i) the Regula- tion (EC) Nr 24/2009 of the European Central Bank of December 19, 2008 concerning statistics on the assets and liabilities of financial vehicle corpora- tions engaged in securitisation transactions (the "ECB Regulation") and (ii) the circular 2009/224 of the Luxembourg Central Bank dated June 8, 2009 on statistical data collection for securitisation vehicles.

SVs must prepare and publish annual accounts, which must be audited by at least one statutory auditor (réviseur d’entreprises), which, in the case of a regulated SV, must be approved by the CSSF.

Multi-compartment structures must in their financial statements include a breakdown of the assets and liabilities per compartment.

Securitisable risks

All risks related to the holding of all movable or immovable assets, tangible or intangible assets as well as those risks resulting from obligations undertaken by third parties or inherent to all or part of their activities may serve for securitisation purposes.

Securitisation vehicles can take on present or future risks by acquiring the underlying assets from their originator (true sale), by way of guaranteeing theobligations of the originator, by using credit derivati- ves such as credit default swaps (synthetic transac- tions) or in any other manner.

The Law states that securitisation transactions are not qualifying as insurance activities.

The Law contains particular provisions in relation to the transfer of claims to an SV. The transfer of claims becomes effective vis-à-vis the parties and third parties as of the moment the transfer is agreed upon between the parties (unless stipulated otherwise). Unless otherwise agreed, all guarantees and securities attached to the claim are transferred upon transfer of the claim and are opposable without further formalities to third parties.

The law governing the assigned claims determines its assignability, the relationship between the assignee and the debtor, the conditions under which the assignment can be invoked against the debtor and whether the debtor’s obligations have been dischar- ged.

The Law clarifies also that the law determining the opposability to third parties of an assignment is the law of the State where the assignor is located, thereby filling a gap left by the Rome Convention of 19 June 1980.