Luxembourg Securitization Reform: Key Proposed Changes to the Securitisation Law
Objective Bill No. 8761: Strengthen Luxembourg's position as a leading securitization jurisdiction by increasing flexibility, legal certainty and structuring opportunities for market participants.
1. Broader Financing Possibilities
The Bill further expands the financing tools available to securitisation vehicles (SVs).
Key change: Financing may be raised through any form of financing or financial commitment (financement ou tout autre engagement financier) (including Islamic finance), rather than relying solely on traditional debt instruments or financial instruments.
Impact: Greater flexibility in structuring funding arrangements.
Facilitates more sophisticated private capital and structured finance transactions.
2. Expansion of Active Management
One of the most important proposed reforms is the extension of active asset management.
Current position: Active management is generally limited to debt portfolios and subject to restrictions.
Proposed change: Active management would be permitted for all asset classes, provided the securities are not offered to the public.
Practical consequence: Opens the door to securitisation structures being used more extensively for:
Private equity strategies;
Infrastructure investments;
Alternative assets; and
Other actively managed investment strategies.
3. Cross-Compartment Investments
The Bill introduces the possibility for compartments of the same securitisation vehicle to invest in one another.
New rule: A compartment may invest directly or indirectly in another compartment of the same securitisation undertaking.
Limitation: Circular investments remain prohibited.
Impact: Increased structuring flexibility similar to that already available in Luxembourg investment fund regimes such as RAIFs and SIFs. The investing compartment will enjoy all the rights of a creditor, including the right to exercise voting rights and to receive all income and financial proceeds attached to that investment.
4. Clarifications on Guarantees and Security
The Bill expressly confirms that securitisation undertakings may grant guarantees and security interests:
For their own obligations;
For obligations of third parties connected to the securitisation transaction; and
In connection with investments made by the securitisation undertaking.
Impact: Greater legal certainty for lenders, investors and transaction counterparties.
5. Insolvency Protection
The Bill confirms that assets of a securitisation fund remain segregated from the insolvency estate of its management company.
Impact: Enhanced investor protection and legal certainty in insolvency scenarios.
6. Clarification of Subordination Rules
The Bill clarifies the treatment of debt instruments whose remuneration is linked to an index plus a fixed margin (e.g., EURIBOR + 2%).
Impact: Greater certainty regarding ranking and subordination within securitisation structures.
Key Takeaway
Bill No. 8761 represents a further modernisation of Luxembourg's securitisation framework and is particularly relevant for private capital sponsors and alternative asset managers. If adopted, the reforms will significantly increase structuring flexibility, expand the scope for actively managed securitisation strategies and reinforce Luxembourg's attractiveness for private equity, private credit and other alternative investment transactions.