Background
On 8 June 2026, draft law No. 8761 amending the amended law of 22 March 2004 on securitisation (the “Securitisation Law”) (the “Draft Law”) was submitted to the Luxembourg Parliament.
While the Securitisation Law was already substantially modernised in 2022 to align with market practice, the Draft Law seeks to further strengthen Luxembourg's competitiveness vis-à-vis other European jurisdictions. The reform is primarily intended to increase structuring flexibility, enhance legal certainty and accommodate evolving financing techniques.
Key amendments
Extended financing techniques
The 2022 reform had already broadened the financing possibilities available to securitisation undertakings by recognising, in addition to the issuance of financial instruments, the possibility of funding transactions through "borrowings".
The Draft Law takes a further step by expressly referring to "financing" (financement) and "any other financial commitments" (tout autre engagement financier). This amendment provides additional legal certainty and accommodates non-traditional financing techniques, such as Islamic finance structures and profit-sharing arrangements.
The Draft Law intends to confirm that securitisation transactions offered to the public may only be financed through the issuance of financial instruments.
Bankruptcy remoteness
The Draft Law further strengthens investor protection and aligns the Securitisation Law to the regime applicable to undertakings for collective investment governed by the law of 17 December 2010 relating to undertakings for collective investment.
The proposed amendments expressly provide that where a securitisation fund is managed by a management company that subsequently becomes bankrupt, the assets of the securitisation fund do not form part of the management company's bankruptcy estate. Creditors of the management company have no recourse against the assets of the securitisation fund.
Investment in another compartment
The Draft Law expressly authorises intra-compartment investments within the same securitisation undertaking. It would allow a compartment to invest directly or indirectly in another compartment of the same securitisation undertaking, provided such investments are permitted under the articles of association, management regulations and issuance documents of the securitisation undertaking.
However, reciprocal investments between compartments remain prohibited in order to prevent circular investment structures.
This enhancement facilitates the implementation of feeder/master compartment structures. It also enables the use of a compartment as a warehousing vehicle, which may subsequently be financed by another compartment through an investment in debt instruments issued by the warehousing compartment.
In case of investment by a compartment into another compartment, the Draft Law preserves investor protection by confirming that the investing compartment retains its voting rights and rights to financial proceeds in the investee compartment.
Extended security package
The Securitisation Law currently restricts the ability of a securitisation undertaking to grant guarantees and security interests to secure obligations connected with the securitisation transaction.
The Draft Law expands this framework by expressly allowing guarantees and security interests to be granted to secure:
- the securitisation undertaking's own obligations;
- obligations of third parties directly or indirectly connected to the securitisation transaction (e.g. to allow a bank providing support to a related transaction entity to benefit from security interests granted by the securitisation undertaking); and
- obligations of third parties in connection with a direct or indirect investment in the securitisation transaction (e.g. to allow a fund financing its investment in a securitisation undertaking through leverage to benefit from security interests granted by the securitisation undertaking in favour of the fund's financing provider).
This extension constitutes a significant improvement, as it complements the broader financing techniques now available to securitisation undertakings and reflects increasingly sophisticated market structures.
Active management
While the 2022 reform has limited active management by securitisation undertakings to portfolios of debt assets, the Draft Law extends the active management regime to portfolios containing other asset classes, including equity-type assets, whilst establishing clear boundaries.
On the one hand, the Draft Law introduces a ‘safe harbour’ by clarifying that the following activities do not constitute active management:
- replacement of defaulted assets;
- replacement of non-eligible assets;
- replacement due to breaches of representations and warranties;
- ramp-up periods;
- continuous acquisitions in revolving structures;
- replacement of repaid assets; and
- marginal portfolio adjustments.
On the other hand, active management is permissible only where the financial instruments issued to finance the securitised risk basket are not offered to the public, thereby limiting such transactions to professional and sophisticated investors.
This extension significantly enhances Luxembourg's attractiveness for managed credit, private credit and alternative asset transactions, while maintaining investor protection through the restriction to non-public offerings.
Subordination rules
While the 2022 reform introduced statutory subordination rules applicable by default, the Draft Law clarifies that fixed-rate debt instruments and floating-rate debt instruments paying a reference rate plus a fixed margin (for example, EURIBOR + 250 basis points) rank pari passu. This approach reflects the fact that the remuneration of both categories of instruments is determined or determinable independently of the residual performance of the securitised assets, hence reducing uncertainty regarding the ranking of commonly used floating-rate instruments, in line with market expectations.
Conclusion
If adopted, the Draft Law will introduce a series of market-driven improvements that are expected to further strengthen Luxembourg's position as a leading jurisdiction for securitisation, private credit and structured finance transactions. By enhancing structuring flexibility, clarifying key legal concepts and accommodating developing financing practices, the reform should further reinforce the attractiveness of the Luxembourg securitisation regime for both domestic and international market participants.
Authors:
- Franck-Olivier Cera, Counsel at Tiberghien
- Thomas Roberdeau, Partner at Tiberghien
