Financing
The acquisition of the securised risks by an SV has to be financed through the issuance of securities (valeurs mobilières), the value or yield of which is linked to such risks.
There is no definition of securities (valeurs mobilières) in the Law. In accordance with Luxembourg conflicts of law rules referring to the lex contractus in respect of debt securities and to the lex societatis in respect of equity securities instruments, which are considered as securities under their governing law or which constitute securities within the meaning of MiFID are considered as securities for the purpose of the law (CSSF – Securitisation FAQ – Question Nr. 10).
An SV may use leverage by borrowing funds from third parties (i) on a temporary basis, in order to pre-fund the acquisition of the relevant assets while awaiting to securitize those assets (warehousing) within an appropriate timeframe by taking into account the market conditions or (ii) on a permanent but limited basis, to cover liquidity shortfalls.
In each case, the issuance documentation must disclose any additional risks for the investors that could potentially result from such borrowings.
Management of assets
The role of the SV must be limited to the administration of financial flows linked to the securitisation transaction itself and to the prudent-man management of the securitised risks.
An SV may manage its assets itself or entrust third parties (including the originator) with the management of its assets (such as the recovery of its claims) without such persons having to apply for a license under the Luxem- bourg law of 5 April 1993 on the financial sector as amended.
An SV cannot assign its assets, except in accordance with the provisions set forth in its constitutional documents.
In order to provide additional security for securitisation structures, an SV is allowed to grant security over its assets only for the purpose of guaranteeing its underta- kings in the framework of the securitisation structure or in favour of the investors, their fiduciary representative or an issuing vehicle involved in the securitisation structure.
Security interests and guarantees created in violation of this restriction are void by operation of law.
Bankruptcy remote structures
The Law expressly confirms the validity of limited recourse and non-petition clauses and indicates that proceedings in violation of these clauses will be dismissed by the courts.
In case an SV delegates the recovery of its claims to a third party, the sums recovered are protected from the bankruptcy of any such third party and the SV has the right to recover such sums.
