13 October 2015
Special Purpose Vehicles in Luxembourg - Some benefits for originators
"Brexit" would mean opportunity for Grand Duchy
Creatrust is at the forefront of a securitisation market in Luxembourg that is as innovative and beneficial today as it has been at any time since its development in the 1990s and while a potential Brexit - where UK leaves the European Union - has got Britain's politicians hot under the collar, if it were to happen, Luxembourg could become a destination of choice for fund managers.
Key benefits of Luxembourg SPVs
There are many potential benefits in establishing a special purpose vehicle (SPV) in Luxembourg; however, as with any such financial entity there is a cost in doing so, meaning that it is essential to receive expert advice to ensure that the vehicle works to reduce the wider cost of capital in a clear and viable way.
Below are listed just some of the many benefits an effective securitisation transaction can bring to originators of the transaction.
Borrowing
One significant benefit of a securitisation vehicle is its ability to give originators access to capital at a borrowing rate consistent with cash flow rather than credit rating. This means that for companies with considerable cash flow but a less impressive credit rating it is possible to use securitisation to reduce the costs of borrowing.
Risk and investor specificity
Compartmentalised securitisation structures allow for revenue streams and particular risks to be broken up into separate sections. This gives investors in this kind of special purpose vehicle the opportunity to invest only in the kinds of risk that appeal to their needs, avoiding exposure to other, unwanted, risks present in other compartments in the vehicle. This aspect of segmentation and specificity allows issuers to benefit from a broader range of investor types while also giving them the opportunity to more specifically target particular investment groups.
Capital
Well-structured securitisation funds in Luxembourg empower originators to raise or free capital at relatively low cost, allowing originators to invest in additional assets or to engage in other projects all within the security and flexibility provided by Luxembourg's favourable regulatory framework for securitisation.
Of course, Brexit is still very much just a notion. A recent poll, by Open Europe group, revealed that only 22 Conservative MPs are committed to leaving the EU, with as many as 203 still undecided where they stand on the issue. However, Luxembourg's benefits for originators remain abundantly clear.
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