Creatrust > Fund > Securitisation Undertakings > Case study: Financial Instruments

Case study:

Financial Instruments

Rationale

A securitisation undertaking established under the Luxembourg Law may securitise many types of underlying assets including the risks linked to any type of Financial Instruments by issuing shares/bonds which yield and value are linked with the Financial Instruments.

Over the last decades securitisation has become an interesting alternative to more traditional forms of financing, credit enhancement such as bank loans, debt issuance, etc.

Securitisation transfers the risk to the investors and effectively removes part or all of the risk from the promoter/originator and/or credit institution.

 

Types of Financial Instruments

Assuming that the securitisation undertaking is not creating its own risk, there are many categories of instruments which may be securitised, among which:

  • Shares: this category includes any type of shares of companies, rights in Partnership, in personal or company of capital, shares in other undertaking, private equities, transparent or non entities.
  •  Bonds: Any type of bonds can be securitised, the ones issued by companies, by any entities, funds or other SPVs, yielding a fixed or variable interest, notes linked with an underlying asset, participating bonds, etc. This can also include Structured Notes.
  • Derivatives: Warrants, options, swaps, futures and any other types of derivative instruments or contract, being listed or not, over the counter, etc.
  • Funds: This category includes any shares of funds, being a Sicav, a FCP, mutual fund, SPV, private equity fund, real estate fund, ETN/ETF, etc.
  • Loans: Though a loan is not a Financial Instrument, if the conditions are known in advance and the subscription rights for bonds have only been transferred to the undertaking, the securitisation of (pre-existing) loans are also eligible. This would encompass the shareholders loans, current account, etc.

 

Functioning

The Securitisation Undertaking will acquire the risk or the rights on the Financial Instrument which will become the underlying assets.

The Securitisation Undertaking will then issue one or different securities which have a yield or a value directly linked with the underlying assets (i.e. Financial Instruments).


Investors

The Securitisation Undertaking may issue securities of different types, among which:

  • Units : Equivalent to a share in the equity of the Securitisation Undertaking, it gives right to the dividend distributed and to the proceed of liquidation

  • Certificates: Directly linked to the underlying asset

  • Bonds: Debt instrument issued by the undertaking with a fixed or variable coupon which may be redeemable periodically or at the end of the securitization process.


Varia

The securitisation vehicle can either buy the asset or only securitise the risk associated with the Financial Instrument.

The Securitisation Undertaking must not at any time be involved in the management of a participation but only securitise the money flows generated by the underlying assets.


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