A THOROUGH UNDERSTANDING OF PRIVATE EQUITY

RETOUR SOMMAIRE

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - 2010

MAIN ACTORS AND STRUCTURES

to the SICAR, which is reserved for private equity and venture capital, as well as oppor- tunistic real estate and other areas such as microfinance, the SIF can also be used for property investments and hedge funds. • The SV (Securitisation Vehicle) was introduced by the Luxembourg Law on securitisa- tion of 22nd March 2004 to create a favourable legal framework for securitisation in and through Luxembourg. The Law defines securitisation as the operation by which a SV pur- chases or assumes, directly or through the intervention of intermediary entities, the risks relating to assets or engagements by issuing securities (shares, bonds…), the value or yield of which depend on such risks 37 . The main highlights of SV are flexibility for arrangers (namely in terms of choice of legal structure, of issueable securities and of regulated or unregulated structures), legal cer- tainty and tax neutrality. SVs proved to be attractive investment vehicles thanks to the wide range of securitisation transactions covered and a regime of tax neutrality. Main benefits of securitisation can be summed up as follows 38 : > Transforming illiquid assets into a source of financing through conversion into tradeable securities; > Achieving a better rating for the securities than the long term rating of the originator;

> Accelerating payment on receivables (sophisticated factoring); > Removal of assets and risks from originator’s balance sheet.

2.2

On the market, SVs can be used in a variety of more or less complex structures, such as the ones illustrated below:

Figure 24: Examples of securitisation structure

Issuance of securities to the capital market

Intra-group transactions

Parent

Investor

Trustee

Preference Shares or Bonds

Issue of securities

Cash

Lux Soparfi

SV Issuer

Equity (Ordinary Shares)

Securitisation SV

Transfer of Assets/Risk

Cash

Originator (Industrial group, Bank, Investment fund)

Funding + Transfer of Assets and Risks

Source: KPMG, 2004

The main features of these 5 vehicles are summed up in figure 25.

37 Source: KPMG, “Luxembourg securitisation vehicle, a new facility for tax efficient capital market investments and intra-group transactions”, 2004 38 Source: ALFI, “The Luxembourg law on securitisation of 22nd March 2004” by Elvinger Hoss & Prussen, 2004

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