Securitisation undertakings

The law of 22 March 2004 on securitisation (the "2004 Law") provided a specific legal framework in Luxembourg for risk securitisation in the broad sense.


The 2004 Law defines securitisation as the transaction by which a securitisation undertaking acquires or assumes, directly or through another undertaking, the risks relating to claims, other assets, or obligations assumed by third parties or inherent to all or part of the activities of third parties and issues securities, whose value or yield depends on such risks. The definition of securitisation provided for by Luxembourg law thus leaves a wide range of possibilities open to securitisation undertakings. The securitisation undertakings may assume those risks by acquiring the assets, guaranteeing the obligations or by committing itself in any other way. The main purpose of a securitisation transaction under the 2004 Law should however, in principle, always be an economic "transformation" of certain risks into securities through the acquisition or coverage of the first ones and the issue of the second ones. The securitisation undertakings which meet the definition provided by the 2004 Law thus benefit from a specific legal framework to carry out their activity.


Securitisation undertakings subject to the 2004 Law enjoy high legal certainty because the 2004 Law expressly lays down the principles of limited recourse and non petition aiming to ensure the securitisation undertaking's bankruptcy remoteness. Indeed, it provides, on the one hand, that investors and creditors of the securitisation undertaking may validly initiate enforcement measures against the securitisation undertaking and to petition for bankruptcy thereof and it specifies, on the other hand, that the rights of the securitisation undertaking's investors and creditors are limited to the assets of the securitisation undertaking or of the compartment to which they are attached. The creditors and investors may accept to subordinate the maturity of their claim to those of other creditors or of certain investors.


Under the 2004 Law, only the securitisation undertakings which issue securities to the public on a continuous basis must be authorised by the CSSF to carry out their activities. If a securitisation undertaking contemplates transactions which may meet the two criteria cumulatively "on a continuous basis" and "to the public", then it must first request (i.e. before starting an activity meeting these two criteria) CSSF’s authorisation. The securitisation undertaking must make this assessment under its own responsibility and then spontaneously contact the CSSF, where appropriate. Certain provisions of the 2004 Law apply to all securitisation undertakings, whether or not they are subject to the CSSF’s supervision, while other provisions do not apply to securitisation undertakings subject to the authorisation requirement.