Securitization explained simply

How to make illiquid assets liquid and “bankable”.

Securitization is a flexible investment instrument that allows investors to purchase liquid and illiquid assets as securities. Similar to funds, securitizations enable capital raising by bundling various assets that investors can benefit from. Investors appreciate securitizations because they can offer individual return-risk profiles.

The Luxembourg law on securitizations allows the creation of compartments that can be liquidated independently of the securitization platform or other compartments of this company. This practically eliminates the issuer risk, which is particularly advantageous for Delta-1 certificates.

Securitizations can issue various securities and debt instruments, e.g., with an ISIN. Typically, securitizations bundle loan portfolios or single financings. However, it is also possible to securitize other types of claims, tangible assets, securities strategies, funds, and more.

Securitizations offer several advantages, including high investor protection. The issuer risk is de facto eliminated, as each compartment represents a separately secured and independent unit, the rights and obligations of investors are limited to the specific compartment, and a separate liquidation is possible. Additionally, if necessary, the securitization can be rated by a rating agency.

Furthermore, compartments as securitization vehicles generally benefit from a variety of Luxembourg double taxation treaties, and all payments from the compartment related to issued securities are fully tax-deductible expenses. This ensures almost complete tax neutrality at the compartment level.

Moreover, implementing a securitization is comparatively simple, as the issuance process is usually completed within six to eight weeks, and the issued securities can be listed on recognized stock exchanges. Furthermore, securitization offers the possibility of restructuring existing financing solutions as a bank-independent, insolvency-protected securitization platform.

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