Securitization explained simply

What is securitisation?

Securitisation (engl. Securitisationrefers to the process of converting any type of asset (real assets, private equity, private debt, etc.) into tradable securities. Through these transactions, companies, banks, and other originators can reduce their risks and free up capital that they can use elsewhere. Furthermore, illiquid assets become investable and deposit-friendly.

How does securitisation work?

A compartment is established via a Luxembourg securitisation platform. The compartment acquires the assets and issues securities in bearer form. The compartment finances the purchase of the assets through the sale of the securities to investors.

The effects of securitisation on lending and financial markets

Securitisations can have an impact on lending and financial markets. On the one hand, securitisations can promote lending by allowing banks to refinance their loans and thus grant new credit. On the other hand, securitisations can also lead to risks for financial markets, particularly if the underlying claims and assets default.

Securitisations in the financing of infrastructure projects and other large-scale ventures

Securitisations can also play an important role in financing infrastructure projects and other large undertakings. By converting assets into tradable securities, investors can raise capital for these projects more easily.

What can be securitised?

Securitisations can be structured in various ways, such as Credit-Linked Notes (CLNs) or Asset-Backed Securities (ABS). These securities can be issued in tranches that have different risks and returns.

• AMC – Shares, bonds, derivatives and other (digital) securities, index products
• CLN – Loans, corporate and project bonds, receivables
• ELN – Single Shares, Share and Asset Deals
• FLN – UCITS / AIFPrivate Equity, hedge funds, etc.)
• ABS – ABS – Ships, Aircraft, Fleets, Houses, Land, Mezzanine, Art, Future Cash Flows, Intellectual Properties, Music Rights, Copyright

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What can be emitted?

Deed (Global Deed) fully fungible/limited fungible

• Bearer bonds
• Name debt instruments
• Bearer shares
• Registered shares
• Vouchers

Contractual, unsecuritised structures

• Participatory rights
• Options
• Loan
• Promissory note loan

Digital structures

• Security Token

Risks of securitisation

Securitisations are associated with various risks, such as the default risk of the underlying claims or the impairment of the securitised asset. These risks can lead to the securities losing value or even becoming worthless.

Facts about securitisation

Luxembourg Securitisation Law

Globally established and respected. Its uniqueness allows for the highest degree of individuality and flexibility.

Flexibility

Almost all assets can be securitised. Furthermore, there are no diversification requirements.

True Sale or transfer of risk

On the asset side, securitisation can be effected through the transfer of the underlying assets or through the pure transfer of risk.

Tax neutrality

Securitisation companies are taxable in Luxembourg and therefore (eligible for Double Taxation Agreements), nevertheless, securitisation transactions are generally tax-neutral in Luxembourg (subject to the application of the interest limitation rule), as all distributions to investors (interest, dividends, repayments) are tax-deductible expenses at the level of the compartment. Taxation takes place at the investor level; there is currently no withholding tax.