Case study:

Securitisation as a "Wrapper"

Rationale

A wrapper is commonly used by an investor, a trust, a family or a promoter to structure a pool of assets into one single security.

It can be useful to hold several type of assets by subscribing one single certificate instead of holding or subscribing different securities.

A promoter might use a wrapper to structure a pool of assets or create an index which is linked to various assets.

An asset manager can place several type of asset into the wrapper to create an investment solution for investor by virtue of which they receive one single bond or note which underlying assets are diversified and may include risky and safe assets at the same time or assets and a protection of capital.

A HNWI or a family office might place whole or part of his assets into a wrapper and use it to transfer his wealth to the next generation or place it into an Life Insurance Policy.

As long as the securitisation undertaking does “not create the risk” it can hold securities which are actively managed by a third party asset manager (Actively Managed Certificate).

 

Securitisation

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/certificate which yield and value are linked with the underlying assets. Over the last decades securitisation has become an interesting alternative to more traditional forms of financing, credit enhancement such as bank loans, debt issuance, funds, shares, etc.

 

Types of Financial Instruments to wrap :

As mentioned above, assuming that the securitisation undertaking is not creating its own risk, there are many categories of instruments which may be securitised and placed into the wrapper 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.

  • But also any hard assets like : real estate, collectibles, art collections, cars, yacht, boat, planes, and any other right linked with these assets like usufruct, lease, agreement or other right like Intellectual properties.

 

Functioning

The Securitisation Undertaking will acquire the risk or the rights on the other assets 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.

 

Investors

The Securitisation Undertaking may issue securities of different type 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 securitisation process.


Varia

The securitisation vehicle can either buy the asset or only securitise the risk associated with the underlying assets.

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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