Securitization Analyzing Luxembourg’s competitive advantage · Securitization –Analyzing...

Securitization – AnalyzingLuxembourg’s competitive advantage

AIF Club

22 February 2018

Agenda

Securitization – Analyzing Luxembourg’s competitive advantage

Speaker: Oliver CLOESS

Executive Director – Directeur Associé Assurance FSO

EY Luxembourg Securitization Leader

► The Luxembourg Securitization

environment

► Competitive benefits

► Market Update & Outlook

► Questions and Answers

► Contacts

Agenda

“Securitization means the transaction by

which a securitization undertaking acquires

or assumes, directly or through another

undertaking, 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.“

Securitization definition

Luxembourg provides a dedicated securitization law having created a stable and reliable securitization framework


Selected main facts on Luxembourg securitization


One legal

framework

Securitization

Definition

Dual layer

structures

Compartments

Investor

protection

Regulation

► Fully ringfenced

► Created / Cancelled

through board decision

► Luxembourg Law on

securitization dated

22 March 2004

► Embedded into

Luxembourg laws

► CSSF FAQ

► Bankruptcy remoteness

► Contractual provisions

► Subordination

► Non-recourse

► Non-petition

► Audit

► Broad definition

► No limitation to credit

risks

► Company versus Fund

► Usually unregulated

► Authorization in case of

more than three

issuances to the public

per calender year

► Usually AIFMD exempt

► Distinctive acquisition

and issuance vehicles

► Acquisition vehicle can

be located outside of

Luxembourg

Securitization in Luxembourg benefits from a very flexibleframework


Selected main facts on Luxembourg securitization


Securities

Risk

Transfer

Methods

► No investor restrictions

► No debt / equity ratios

► Equity & Debt securities

► Listing

► Rating

► True Sale

► Synthetic

Asset

Classes

► Almost no limitations in

eligible assets

► No diversification rules

► Active management

restrictions

One legal

framework

Securitization

Definition

Dual layer

structures

Compartments

Investor

protection

Regulation

► Fully ringfenced

► Created / Cancelled

through board decision

► Luxembourg Law on

securitization dated

22 March 2004

► Embedded into

Luxembourg laws

► CSSF FAQ

► Bankruptcy remoteness

► Contractual provisions

► Subordination

► Non-recourse

► Non-petition

► Audit

► Broad definition

► No limitation to credit

risks

► Company versus Fund

► Usually unregulated

► Authorization in case of

more than three

issuances to the public

per calender year

► Usually AIFMD exempt

► Distinctive acquisition

and issuance vehicles

► Acquisition vehicle can

be located outside of

Luxembourg

Luxembourg securitization companies benefit from a tax-neutral regime


The applicable taxes


► Corporate Income Tax and Municipal Business Tax

► Overall nominal tax rate (2018) = 26,01%

► Distributions (interest and dividends) are usually tax deductible

► Taxable result usually zero

► Value Added Tax

► Nominal tax rate 17%

► Net worth tax (flat):

► Regime 1: EUR 4,815 per anno

► Regime 2: EUR 535 per anno

The securitization environment is competitive compared to other vehicles in Luxembourg


Selected Luxembourg fund structures


Securitization

Company

Specialized Investment

Fund (SIF)

UCITS

2010 Law part II

► € 1.25m (6 months)

► Some restrictions

► Yes, max. 20% each

► Yes

► All, no minimum amount,

but to raise from public

► CSSF

► No

► Fund units (Equity)

► Fair Value

► € 1.25m (12 months)

► No restrictions

► Yes, max. 30% each

► Yes

► Well informed investors,

minimum € 125,000

► CSSF / AIFM

► Yes


► Fair Value

► None (no time limit)

► No restrictions

► No

► None in principle

► All, no minimum

amount

► None (CSSF possible)

► Usually exempt

► Bonds/Note (Debt)

► COST, LOCOM, Fair

Value

Reserved Alternative

Investment Fund

► € 1.25m (12 months)

► No restrictions

► Yes, risk spreading

principles

► Yes

► Well informed investors,

minimum € 125,000

► AIFM (indirectly CSSF)

► Yes


► Fair Value in principle

► Minimum Capital

► Asset Classes

► Asset diversification

► Active management

► Eligible Investors &

amount per investor

► Regulator

► AIF Manager

► Typical issued product

► Accounting Asset

Measurement

The Luxembourg securitization company provides competitivebenefits compared to other countries


Selected criteria compared to Ireland


Luxembourg Securitization

► Heart of continental Europe

► Very Strong reputation and well known as 2nd

largest global investment fund center

► High

► Yes dated 22 March 2004

► Yes

► Yes (english, french, german)

► € 12,000 (Sarl) / € 31,000 (SA)

► Tax neutral

► Location

► Marketplace

► Provider experience

► Dedicated

Securitization Law

► Compartments

► Multi-lingual

► Minimum statutory

equity

► Tax regime

Ireland Securitization

► Island at the edge of Europe

► Strong reputation

► High

► No, driven by the Section 110 Tax Regime

► No

► No (english)

► € 1 (LTD / DAC) / € 25,000 (PLC)

► Tax neutral when invested in qualifying assets

exceeding € 10 million market value

By evidence, Luxembourg is the prime securitization domicile in the Euro Area providing a state of the art securitization vehicle


Domiciliation market shares within the Euro Area


Luxembourg30%

Ireland23%

Italy16%

Netherlands11%

France9%

Spain8%

Other3%

Sources: European Central Bank Financial Vehicle Corporation Statistics

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2009 2010 2011 2012 2013 2014 2015 2016 2017

Securitization vehicle market share Luxembourg

Luxembourg Other

30%28%26%21%21%21%16%17%18%

2017 Q3

Historic market developments


0

200

400

600

800

1000

1200

1400

2009 2010 2011 2012 2013 2014 2015 2016 2017

Securitization vehicles (LU vs IE)

Luxembourg Ireland

0

1000

2000

3000

4000

5000

6000

2009 2010 2011 2012 2013 2014 2015 2016 2017

Securitization Transactions (LU vs IE)

Luxembourg Ireland

Sources: European Central Bank Financial Vehicle Corporation Statistics

Growth rate 16/17 = 14%

Luxembourg authorized securitization companiesNumber and Issuance Volumes in € billion


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017e

Issuance 3,0 11,0 13,9 15,3 16,5 12,0 12,7 14,4 15,9 18,6 23,8 28,3 35,2 37,0

Number 2,0 6,0 11,0 17,0 20,0 23,0 26,0 27,0 32,0 31,0 32,0 32,0 34,0 34,0

0,0

5,0

10,0

15,0

20,0

25,0

30,0

35,0

40,0

Sources: Commission de Surveillance du Secteur Financiere

Main securitized asset classes in Luxembourg

► Loan/Credit asset classes

► Auto loans and lease receivables

► Aviation loans

► Consumer loans

► Infrastructure loans

► Mortgage loans

► Non performing loans

► Trade receivables


Sources: Commission de Surveillance du Secteur Financiere

► Other asset classes

► Fund investments

► Intangible assets / Rights

► Index / Basket linked products

► Repackaging deals

► Structured finance deals

The Luxembourg market outlookcontinues to be very positive


Growth drivers

► Flexibility

► Experienced Service Providers

► Compartment concept

► Potential softening of the Securitization Law


Luxembourg

Legal

Environment

Investment

Types

Structured

Finance

► Fund investments

► Infrastructure investments

► Aviation Loans

► Rights

► Index / Basket linked products

STS

Securitization

► EU Support & Reputation

► Harmonization & STS Criteria

► Cost & Capital requirements

► Sanctions

Core

securitization

benefits

► Risk transfer to 3rd parties

► Convert illiquid assets into liquidity

► Release prudential capital

► Broaden funding sources

Questions ?


EY Luxembourg securitization contacts


Assurance

English markets: Jaffer Ahsan, Assurance FSO Senior Manager: Phone +352 42 124 8423 – eMail [email protected]

French markets: Sebastien Nicolas, Assurance FSO Senior Manager: Phone +352 42 124 8607 – eMail [email protected]

German markets: Christiane Friedrich, Assurance FSO Manager: Phone +352 42 124 8802 – eMail [email protected]

Tax

International Tax: Dietmar Klos, Tax Partner: Phone +352 42 124 7282 – eMail [email protected]

Compliance: John Hames, Tax Partner: Phone +352 42 124 7256 – eMail [email protected]

Financial Regulatory

Mathieu Volckrick, Executive Director – Directeur Associé: Phone +352 42 124 7014 – eMail [email protected]

Financial Accounting & Advisory Services

Olivier Jordant, Partner: Phone +352 42 124 8161 – eMail [email protected]

Securitization Leader

Oliver Cloess

Executive Director – Directeur Associé Assurance FSO

Phone +352 42 124 8696 – eMail [email protected]

mailto:[email protected]







Thank you

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purposes only and is not intended to be relied upon as

accounting, tax, or other professional advice. Please refer to

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