Securitization is a financial technique that consists of issuing financial securities (bonds) with a complex structure, involving several players. Technically, assets are selected according to the quality of their guarantees and are grouped together in an ad hoc company that acquires them by financing them through the issue of securities subscribed by investors.
These securities give investors the right to receive payments when settling trade receivables, or when making monthly payments for loans. Securityholders will recover their investment in the form of principal repayment and interest under the conditions defined for each sub-fund.
Securitization vehicles have been adopted for many years by many countries, such as the United States, the United Kingdom or France, as well as other countries of the European Union. Following the success of securitization in the financial world, the Grand Duchy has taken this path in turn and broadened, by the law of 22 March 2004, the range of financial services available on the market.
The law aims, on the one hand, to harmonize and balance the interests of companies wishing to extract certain assets from their balance sheet, so that they no longer bear the risk inherent in these assets. On the other hand, it protects the rights of investors who finance the organization’s acquisitions and bear the risks associated with these assets.
This technique has advantages for both initial lenders and originators. For example, by allowing them to reduce their costs and increase their financing capacity while continuing to meet regulatory capital requirements. But also for investors and markets, and could even have more general social and economic benefits.
For example, here is the financial package
of our securitization company, Breedewee Opportunities S.A.
Securitization: Which interests for investors?
- Historical performance of these products in line with expectations/ratings of the tranches
- Search for yield in a context of low interest rates and abundant liquidity
- Alignment of interests and initiatives to make the market more readable
And for project owners?
- Diversification of financing tools
- Indirect source of liquidity through the use as collateral in central bank liquidity operations or private operations
- Alignment of interests
A securitization company shall provide, on the one hand, that investors and creditors of the securitization vehicle may validly waive the right to take enforcement action against the securitization vehicle and to assign it to bankruptcy and shall specify.On the other hand, that the rights of investors and creditors of a securitization company are limited to the assets of the securitization company or the sub-fund to which they are attached. Creditors and investors may agree to make their claims subordinate to those of other creditors or even certain investors.