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Page 2
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
Page 3
Luxembourg provides a dedicated securitization law having created a stable and reliable securitization framework
Securitization – Analyzing Luxembourg’s competitive advantage
Page 4
Selected main facts on Luxembourg securitization
Securitization – Analyzing Luxembourg’s competitive advantage
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
Page 5
Securitization in Luxembourg benefits from a very flexibleframework
Securitization – Analyzing Luxembourg’s competitive advantage
Page 6
Selected main facts on Luxembourg securitization
Securitization – Analyzing Luxembourg’s competitive advantage
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
Page 7
Luxembourg securitization companies benefit from a tax-neutral regime
Securitization – Analyzing Luxembourg’s competitive advantage
Page 8
The applicable taxes
Securitization – Analyzing Luxembourg’s competitive advantage
► 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
Page 9
The securitization environment is competitive compared to other vehicles in Luxembourg
Securitization – Analyzing Luxembourg’s competitive advantage
Page 10
Selected Luxembourg fund structures
Securitization – Analyzing Luxembourg’s competitive advantage
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
► Fund units (Equity)
► 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
► Fund units (Equity)
► 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
Page 11
The Luxembourg securitization company provides competitivebenefits compared to other countries
Securitization – Analyzing Luxembourg’s competitive advantage
Page 12
Selected criteria compared to Ireland
Securitization – Analyzing Luxembourg’s competitive advantage
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
Page 13
By evidence, Luxembourg is the prime securitization domicile in the Euro Area providing a state of the art securitization vehicle
Securitization – Analyzing Luxembourg’s competitive advantage
Page 14
Domiciliation market shares within the Euro Area
Securitization – Analyzing Luxembourg’s competitive advantage
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
Page 15
Historic market developments
Securitization – Analyzing Luxembourg’s competitive advantage
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%
Page 16
Luxembourg authorized securitization companiesNumber and Issuance Volumes in € billion
Securitization – Analyzing Luxembourg’s competitive advantage
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
Page 17
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
Securitization – Analyzing Luxembourg’s competitive advantage
Sources: Commission de Surveillance du Secteur Financiere
► Other asset classes
► Fund investments
► Intangible assets / Rights
► Index / Basket linked products
► Repackaging deals
► Structured finance deals
Page 18
The Luxembourg market outlookcontinues to be very positive
Securitization – Analyzing Luxembourg’s competitive advantage
Page 19
Growth drivers
► Flexibility
► Experienced Service Providers
► Compartment concept
► Potential softening of the Securitization Law
Securitization – Analyzing Luxembourg’s competitive advantage
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
Page 21
EY Luxembourg securitization contacts
Securitization – Analyzing Luxembourg’s competitive advantage
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]
EY | Assurance | Tax | Transactions | Advisory
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