What is a Securitization Fund?
Securitisation is a financing process by which a developer transfers one or more assets or risks to a Securitization Vehicle in return for remuneration. The securitisation vehicle
is financed by issuance of securities backed by the transferred assets (collateral) and the income generated by those assets.
Legal Form of Securitization Funds
Securitization funds LU are not legal entities. They are managed by a management company. They are made in the form of a trust separate from the management company, which must be headquartered in Luxembourg (Ltd. Or LLC). The assets and liabilities of such funds must be separate from those of the management company. A securitization fund may consist of several separate sub-funds. The Securization fund Luxembourg companies must be incorporated as one of the following forms: limited company, Limited by share Partnership, limited liability company or cooperative society organised as a limited company.
The company the board / borad of a securitisation may be authorized by the statutes to establish one or more compartments each managing a portion of the assets and liabilities of the company. Compartmentalization allows sparation of management, liabilities, and contentious aspects of the liquidation. the minimum capital required for the securitization company is the minimum amount required to trading companies (12,500 euros or 31,000 euros).
The designated fund may aquire loans or interests in loans. There is no debt to equity ratio.
Securitization Fund Obejectives
Securitization fund in Luxembourg is a tool, which enables the transferor (fund or company or special purpose vehicle – SPV) to acquire or assume risks linked to receivables, to any type of assets or to any commitment assumed by third parties or related to activities performed by third parties. The securitised legal entity acquires or assumes such a risk by issuing any type of securities whose value and returns are linked to the securitised assets.
Through securitization, cash flow producing only unliquidated assets can be grouped into an investment vehicle. The cash flow generated by the group of assets are then redirected to help finance instruments issued by the securitization vehicle on the capital markets.
Securitization allows natural or legal persons to seperate certain assets of their heritage and place them in a securitisation vehicle, thus avoiding to assume the risk resulting from the holding or management of such assets. Therefore, investors finance the securitization vehicle by inssuing securities. In this way, they will alone bear the risks associated with the assets of such an entity.
Securitization funds are subject to the tax regime provided by Luxembourg legislation for a Luxembourg FCP (Fonds Commun de placement). Distributions of income to investors are fully deductible from a securitization company tax base. Distributions of income to investors are not subject to Luxembourg dividend withholding tax. For residents Luxembourg tax administration usually accepts that transactions at the fund level are disregarded and the income is only recognized in the event of disposal of units and of a distribution made by the fund. Non-residents are generally not subject to Luxembourg tax on income and capital gains derived from a fund.