Securitization in Luxembourg. Our team Our services

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1 Securitization in Luxembourg Our team Our services

2 Table of contents EY Luxembourg s Securitization Team Our ambition 1 We are part of an integrated global structured finance team 2 Luxembourg, a leading domicile for Securitization Vehicles 3 The EY Luxembourg Securitization Team 6 Our client service model 8 Our expertise at your service 9 Product lifecycles - helping you succeed every step of the way 10

3 EY Luxembourg s Securitization Our team Our ambition EY Luxembourg s leading integrated Securitization practice comprises professionals providing audit and assurance, tax, advisory, risk management and transaction services to Securitization promoters, originators, sponsors, corporate service providers and Securitization vehicles. With a significant market share, our team understands and provides insights into the challenges that those Securitization players are faced in changing marketplace. EY has a global banking and capital markets team providing professional services to the structured finance and Securitization industry. Due to the highly diversified Securitization process and its international nature, our EY Luxembourg team is closely connected with structured finance and Securitization professionals around the world, serving as a key hub in our network. Our Luxembourg Securitization team includes experts with deep industry knowledge and experience. At EY we deploy services that match needs over the lifecycle of Securitization transactions, providing a step-by-step approach. In certain areas our team members are considered industry thought leaders, identifying and creating points of view on emerging business issues and developing practical solutions. This knowledge is proactively shared with market participants through issuebased forums such as the EY Alternative Investment Funds Club (AIF Club), which addresses industry, technical and regulatory issues. Our expertise is also shared with our clients. In the way we aspire to work with each of them, in an open, objective and collaborative manner. For instance, we often organize facilitated sessions to help clients understand and address matters critical to their success and compliance. In short, whether performing assurance services, providing tax or structuring advice, or engaging in transaction related services, our ambition is to ensure that our clients receive an all-around quality service executed by some of the most knowledgeable and experienced professionals in the Securitization industry. At the same time we want to play an active role in shaping the future of the market in a positive way and contribute to the development of effective market infrastructure through our involvement with industry organizations and insightful thought leadership. Oliver Cloess Securitization EY, Luxembourg Ernst & Young Luxembourg Our Securitization leading Securitization in Luxembourg team 1

4 We are part of an integrated global structured finance team Since 2008, our practices in Europe, the Middle East, India and Africa (EMEIA) operate under a single structure and serve as a key part of our global framework. As such EY was the first major professional services organization bringing a borderless approach to the emerging markets of Africa, India, the Middle East, and Russia and the established markets in Europe. Working in our EMEIA Area brings together industry and cross-service line experience of 87 countries. This enables EY to better leverage its strength and to move swiftly to bring together its teams to serve clients by providing professional services in order to help to meet the client s business needs wherever they arise. Dealing mainly with international diversified Securitization structures, our Luxembourg team has significantly benefited from this strong network. Our close working relationships with our colleagues in EMEIA and across the world allow us to respond quickly to client needs and ensure an efficient and well-coordinated approach. EMEIA Americas Asia-Pacific Japan 2 Securitization in Luxembourg

5 Luxembourg, a leading domicile for Securitization Vehicles Luxembourg The country Luxembourg is a founding member of the European Union and the Schengen Area (Eurozone), and member of many international bodies including the United Nations (UN) and North Atlantic Treaty Organization (NATO). Luxembourg, a constitutional monarchy, is one of the smallest European Union Member States. It is located between Germany, France and Belgium with an area of 2,586 square kilometers and approximately 549,680 inhabitants. Luxembourg offers a stable business environment, enhanced by its social and political stability. The country has one of the world s lowest debt-to-gross domestic product (GDP) ratios. Situated at the heart of Europe, Luxembourg offers easy access to other financial centers, including regular air and rail links to some of Europe s major cities such as Brussels, Frankfurt, Geneva, London, Madrid, Paris and Zurich. Luxembourg A financial center Luxembourg has become one of the world s leading financial centers and often serves as a European hub for business serving clients worldwide. It stands out as an international center of excellence for private banking and investment funds, and continues to evolve rapidly in these areas. The diversity of these sectors is demonstrated by the geographical origins of banks (from over 20 countries) and the promoters of investment funds (from over 40 countries). Luxembourg offers a full range of financial services provided, by investment firms, financial sector professionals, domiciliation agents, administrative agents, operators of IT systems and communications networks, the Luxembourg Stock Exchange, and payment and securities settlement systems. The financial center is served by highly experienced and competent locallybased service providers such as lawyers, accountants and tax advisers. Luxembourg s financial services industry, regulators and supervisory authorities have adopted an internationally proactive approach, as illustrated for example, by: Promotional activities: Luxembourg organizations including LuxembourgForFinance, the agency for the development of the financial center, and the Association of the Luxembourg Fund Industry (ALFI) regularly organize international roadshows to promote the Luxembourg financial center, its products and services, as well as to update industry professionals on relevant industry developments Double taxation treaties (DTTs): Luxembourg has signed DTTs with over 70 countries Luxembourg The Securitization market The Luxembourg Securitization Law provides a favorable legal environment for Securitization vehicles since Flexibility and reliability of this legal regime suit perfect to the needs of Securitization transactions. Despite the turmoil of the financial crisis, Luxembourg has developed as one of the most important and active European Securitization domiciles, representing 28% of all European Securitization transactions reported under the European Central Bank s Financial Vehicle Corporations (FVC) regulation. It represents the second-largest international Securitization domicile in the Eurozone. 14% 12% 11% 28% 35% Luxembourg Ireland Spain Italy Others Securitization in Luxembourg 3

6 Why Luxembourg for Securitization Vehicles? In general, Luxembourg Securitization Vehicles are not regulated, but are mandatorily regulated when they issue securities continuously to the public. Regulated Securitization Vehicles are authorized and supervised by the local regulator, the Commission de Surveillance du Secteur Financier (CSSF). The Luxembourg Securitization market is successfully monitored by the CSSF, where, through its Securitization committee, recent market trends are regularly discussed. Based on its market insights Luxembourg has emerged as an international domicile of choice for Securitization Vehicles due to factors such as: An outstanding track record in registered and successful Securitization transactions A legal environment which allows a wide range of asset classes A flexible regulatory environment that can adapt to the needs of structures The reputation and stability of the financial center (in Luxembourg) Tax efficiency ensuring that there is no additional tax burden at the level of the Securitization Vehicle and that taxation occurs only at investor level Accessibility to the tax and supervisory authorities Expertise and cost competitiveness of locally-based service providers The ability to outsource, to the extent possible, both within the domicile and cross-border Multilingual and multicultural workforce, with extensive experience in the needs of an international clientele Tax considerations Luxembourg s Securitization Law offers investors a very flexible regime for Securitization Vehicles, a high level of protection and legal certainty as well as a tax-neutral treatment in Luxembourg. The main tax principles applicable to Luxembourg Securitization Companies can briefly be summarized as follows: They are fully taxable companies subject to corporate income tax and municipal business tax: However, commitments (interest or dividend) towards investors and creditors are tax deductible. Therefore, in practice, as most of its income is immediately repaid or committed to investors, the taxable basis of Securitization Companies is often close to zero Benefit from net wealth tax exemption Are not subject to specific thin capitalization rules Have access to existing DTTs on a caseby-case basis Are subject to minimum tax 1 Are subject to VAT Luxembourg scores highly in the above factors helping to generate significant and continued growth in the Securitization market in Luxembourg. 4 Securitization in Luxembourg 1 The Minimum Tax is the minimum amount of corporate income tax to be paid by Luxembourg corporate taxpayers. As from 2013, the Minimum Tax is extended to all types of companies.

7 Flexibility for Luxembourg Securitization Structures The Luxembourg Securitization Law provides flexibility for Securitization structures, which concerns inter alia: A broad legal concept of Securitization Possibility to set-up Securitization companies or Securitization funds Regulation by the CSSF in exceptional cases only Possibility to set-up multi-compartment structures The readiness for true-sale (asset transfer) and synthetic (risk transfer) transactions The eligibility of all asset classes, all investors and all types of instruments to be issued The possibility to split into acquisition vehicle and financing vehicle (two level structures) The key flexibility features are selfexplanatory. However, the following examples demonstrate the advantage of two-level structures. Luxembourg Securitization Vehicles often assume residential mortgage loans that are usually originated in a foreign country being different from the country of the registered office of the Securitization Vehicle (Luxembourg). It may occur that these foreign jurisdictions prevent originators selling those assets to an investor outside of the country of asset origination. Luxembourg offers two-level- Securitization- Structures that provides further optimization of such transactions through the foundation of a Luxembourg- based issuing Securitization Vehicle (Lux SV) and the foundation of a foreign acquisition vehicle ( Company ) (see Example 1). Two-level-structures have been advised in the Luxembourg Securitization market for many reasons. One of the main reasons is the structuring of Securitization Vehicles that intend exchanging securitized assets, whether or not on a regular basis, and where the asset management activity is transferred into an acquisition vehicle (Lux Co) that is not subject to the Securitization Law but rather is transferring its performance via a profit participating loan from the acquisition vehicle to the issuing Securitization Vehicle (Lux SV) (see Example 2). Example 1 Example 2 Investors Shareholder (stichting) Investors Shareholder (stichting) Outside Luxembourg Bond Equity e.g., Certificate Equity Lux SV (issuing vehicle) Lux SV (issuing vehicle) Luxembourg Foreign country Company (acquisition vehicle) Mortgage loans Profit participating loan Investments Lux Co (acquisition vehicle) Traded shares e.g., Profit participating loan Investments According to the terms and conditions of the certificate issued the shares may be traded actively Securitization in Luxembourg 5

8 The EY Luxembourg Securitization Team Our Luxembourg Securitization Team is a key hub in our EMEIA network, where people and ideas come together to develop cutting edge thought leadership and insights for the benefit of our clients. Serving a range of different clients operating across the world, we are constantly exposed to market developments on both a technical and business level in addition to regulatory changes. Our client service objectives are an integral part of our firm s philosophy; our aim to differentiate ourselves in the market through flawless client delivery and thought leadership. Some key members of our Luxembourg Securitization Team are: 6 Securitization in Luxembourg

9 Oliver Cloess Luxembourg Securitization Leader and Executive Director in our Financial Services Assurance Practice Dietmar Klos Luxembourg Financial Services Tax Leader and Partner in our Financial Services International Tax practice Renaud Breyer Executive Director in our Financial Services Accounting and Advisory Practice (FAAS) Oliver Cloess has more than 15 years of experience in the financial industry and is the leader of our Securitization practice. He is a specialist in providing assurance services to Luxembourg Securitization structures and is at EY Luxembourg responsible for the coordination of all Securitization activities cross service lines (Assurance, Tax, Regulatory and Advisory). He has significant experience with Securitization transactions of all asset classes and debt instruments issued. Oliver acts as audit partner and technical quality reviewer for many securization clients on Luxembourg audits of listed Securitization Vehicles. Oliver is member of the ALFI and ABBL working groups on securitization and supports the Securitization Committee of the Luxembourg organization of the public chartered accountants, the Institute des Réviseurs d entreprises. Dietmar Klos has over 20 years of professional experience in Luxembourg and is the leader of our Financial Services Tax Practice. Dietmar has significant professional experience in setting-up and structuring of Luxembourg and international Securitization transactions. Furthermore, Dietmar has experience in the alternative investment fund market and is specialized in the structuring of investment funds, debt funds, intermediate holding and financing arrangements between international investors and European as well as international targets. Furthermore, Dietmar advises on the set-up of Luxembourg regulated platforms (FCP 2 /SICAV 3 /SIF 4 ), nonregulated platforms for international real estate and private equity investments, as well as on the set-up and structuring of Luxembourg SICAR s 5. Renaud Breyer has over 14 years of professional experience in Luxembourg and is a specialist in the accounting and reporting of Securitization Structures. As well as serving as our resident International Financial Reporting Standards (IFRS) expert and he is responsible for interpreting and giving guidance on technical pronouncements. Renaud also leads a range of projects in this field including GAAP conversions, reporting disclosures and policies and procedures documentation. Renauld is a Chartered Accountant, and a member of the financial reporting and AIFMD reporting working groups of the ALFI). Sebastien Fourny Director in our Financial Services Organization and Accounting Reporting Services (ACR). Bob Fischer Partner in our Accounting and Corporate Secretarial Services Practice (ACS) Vincent Galand Executive Director in our FSRM Practice and Luxembourg s Banking Risk Management and Prudential Regulation Leader Sebastien Fourny, Chartered Accountant, has over 15 years of professional experience in Luxembourg and is a specialist in the Accounting Compliance and Reporting Department. Sebastien has developed the EY Luxembourg automated reporting solution for securitization, asset management, alternative investment fund, holding, finance companies and insurance practices. Sebastien is in charge of the financial reporting compilation under Lux GAAP and others GAAP and he has served on numerous international and local clients. Bob Fischer has 20 years of professional experience in Luxembourg and is leading the EY Luxembourg Accounting Compliance and Reporting Department which delivers coordinated compliance services to holding and finance companies set up as special purpose vehicles in the framework of multinational corporate or fund structures. Bob has expert knowledge in the application and interpretation of Luxembourg company law and GAAP as well as IFRS experience. Bob is Réviseur d Entreprises and member of the Board of the Luxembourg Ordre des Experts-Comptables. Bob and his team provide you with the confidence to deal with corporate compliance matters, which are dealt with efficiently and on a timely basis, working closely with our tax compliance team to ensure provision of a full service. Vincent Galand is an experienced risk professional, with FRM certification and extensive insight of the local industry with more than 19 years experience. As EY Luxembourg Basel III expert and Banking Risk Management and Prudential Regulation Leader, he is an active member of the working groups organized by the Luxembourg Bankers Association (ABBL) on the local implementation of Capital Requirements Directive and Regulation (CRD IV/CRR) and related topics. Vincent and his team provide the subject matter expertise on banking risk management and on all prudential requirements applicable to Securitizations under CRD IV/CRR, European Market Infrastructure Regulation (EMIR) and related aspects covering capital and liquidity requirements, large exposures, Common reporting (COREP) and Pillar II assessments. 2 Common fund (Fonds commun de placement FCP). 3 Investment company with variable capital (Société d investissement à capital variable SICAV). 4 Specialized Investment Fund (Fonds d investissement spécialisé SIF). 5 Investment company in risk capital (Société d Investissement en Capital à Risque SICAR). Securitization in Luxembourg 7

10 Our client service model In Luxembourg, with over 1,200 professionals, we combine our European and global capability with our local knowledge to deliver a full range of services to meet our clients business needs. EY s unique structure enables our financial services practice to work effectively on a cross-border basis. When working with our clients, we pride ourselves on our deep commitment to the sector, and the insights and support we could bring to you: The benefits of our client service model: A combination of the right people, knowledge and skills, supported by a strong delivery model Access to peers and the wider sector community through our AIF Club: as a client of EY you will have exclusive access Insight into the latest industry developments, including tax, accounting and regulatory changes With the support of both the teams of the sectors, inter alia, banking, real estate, private equity, and asset management, and of the different service lines (i.e., tax, advisory, assurance and transactions) the Luxembourg Securitization Team did build a strong community aiming to deliver outstanding services to clients. We pride ourselves on our commitment to: Operate within an effective network Develop real business insights Execute high quality professional services 8 Securitization in Luxembourg

11 Our expertise at your service Our leading market position for alternative investments EY Luxembourg has made the alternative investment industry its priority since many years. We are the leading advisory and audit firm for alternative investment structures in Luxembourg. More than 10 years ago, we have set up dedicated departments with professionals focusing exclusively on hedge funds, real estate or private equity structures. The AIF Club EY Luxembourg s objective is to provide quality services to the entire value chain of alternative fund structures based here. The objective of the AIF Club is to support its members in making this transformation happen by building a community around thought leadership and a clear vision of the future. The AIF Club has been created to: Provide insight into developments in the alternative sectors of the financial industry: private equity, real estate and hedge funds Provide education and trainings for the industry practitioners to better serve and understand the industry Provide alternative industry practitioners with a platform to meet, exchange views and network We hope the AIF Club will give both asset managers and their service providers a platform for establishing new contacts, learn about market trends and stimulate ideas and opportunities. As a client of EY you will have exclusive access to our AIF Club program. At the cutting edge of technical developments of the industry EY Luxembourg plays a leading role in the development of Securitization business in Luxembourg. Our professionals are in close and frequent contact with major market players, as well as regulatory authorities and associations, contributing to the development of Luxembourg as a European hub for Securitization Vehicles. EY plays an active role in all of the most important Luxembourg industry bodies some of which consult with the Luxembourg financial sector supervisory authority (CSSF) on a regular basis. Our awards in Luxembourg Alternative Investment Audit & Advisory Firm of the Year, Luxembourg Wealth & Finance magazine, September 2014 National Tax firm of the Year International Tax Review, 21 May 2014 Private Equity Advisory Firm of the Year in Luxembourg InterContinental Finance Magazine, May 2014 Real Estate Advisory Firm of the Year in Luxembourg InterContinental Finance Magazine, May 2014 International Tax Advisors of the Year in Luxembourg InterContinental Finance Magazine, May 2014 Cross Border Real Estate Advisory Firm of the Year Luxembourg Global Awards Winner CorporateLiveWire, 2014 For further information, see ey.com/lu/awards Securitization in Luxembourg 9

12 Product lifecycles - helping you succeed every step of the way Securitization launch Ongoing operations Servicing Reporting Economic design Tax and regulatory structures Financial frameworks Design operations Taxation Accounting Cash flow modeling/tax and regulatory structuring/financial frameworks and reporting/due diligences/operating Structures/Capital markets Knowledge Training Economic design Starting a dialogue through the economic design of your Securitization product with the EY team will give you the confidence that the specifications in your term sheet are integrated and complete, aligned with target investors needs, practical from an operational point of view and if potential road blocks are identifiable at this very early stage. Critical elements include preliminary analysis of assets to be securitized, evaluation of expected cost and benefit of the structure, identification of critical rating and operational issues, preliminary analysis of debt structuring, identification and competitive beauty contest of potential experienced corporate service providers. Tax and regulatory structures Interaction with our tax and regulatory experts will ensure that the appropriate regulatory framework is selected based on the economic design of the product. We will also assist with the preparation of all Securitization documents and contracts, as well as through the Securitization regulatory authorization process (if applicable). Critical areas, such as maintaining appropriate substance over time and ensuring that technical benefits are not outweighed by the cost of operational complexity, are always key considerations. Furthermore, we assist in structuring your product by involving the experts and taking into consideration the expectations of rating agencies and investors. This includes asset pool historic financial performance analysis, asset file reviews and to ensure asset eligibility. Financial frameworks Investors are increasingly demanding in terms of reporting and adherence to industry best practices. At the same time there is a balance to strike with the cost of complex reporting. Our team guides you through the design of an appropriate financial framework at the edge of industry practices. We further analyze the impact of external accounting frameworks and discuss appropriate solutions, whether on the structuring or the accounting side. Design operations Whether using your existing operational platform or creating one from scratch, our team supports you in the smooth launch of your product. This includes selecting and training key corporate service providers, designing effective business processes and using effective IT infrastructure, i.e., evaluating IT readiness for regular and efficient servicing and reporting activities, our team can designing and implementing solutions in line with recent market standards. When the project enters the closing stage, our team provides comfort by asset pool data validation or on prospectus information. Ongoing operations During the lifetime of a Securitization transaction, a well-balanced and efficient operating platform is essential, especially in times of unstable markets. Through our audit or tax relationship, or as the focus of separate advisory mandates, we hope to help you to comply at all times with tax and regulatory frameworks, optimize the deployment of your IT infrastructure, improve business process efficiency and prepare comprehensive, world class, investor reporting. 10 Securitization in Luxembourg

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14 Services and contacts Luxembourg Securitization Leader Assurance A highly customized approach is combined with deep Securitization knowledge around accounting, reporting and key industry issues. We emphasize robust project management to ensure timely finalisation within agreed deadlines. Oliver Cloess oliver.cloess@lu.ey.com Oliver Cloess oliver.cloess@lu.ey.com Our services: High quality regulatory and contractual assurance engagements Specific scope assurance reports Capital markets transaction support Financial Reporting Services The regulatory and accounting framework is continuously evolving, making it increasingly complex to cope with all the new Luxembourg and foreign financial statement disclosure requirements. Our team of experts and our dedicated tool help to optimize reporting process. Sebastien Fourny sebastien.fourny@lu.ey.com Our services: Automation of financial reporting End-to-end coordination of the reporting process Financial statement mock-up design Customizable layout Translation of financial statements Compilation of annual, semi-annual and quarterly financial statements GAAP conversions Financial Accounting and Advisory Services Our team of experts helps to redesign and upgrade investor reporting to gain a competitive advantage. Renaud Breyer renaud.breyer@lu.ey.com Our services: Advise on complex accounting issues and critical judgment and estimates IFRS compliance Financial statement review Financial modeling Financial statement close process efficiency reviews Developing accounting manuals, reporting templates, checklists and other similar documentation Training on accounting and regulatory frameworks 12 Securitization in Luxembourg

15 Accounting and Corporate Secretarial Services We provide practical but high end accounting services for unregulated Securitization structures. Bob Fischer Our services: Securitization Vehicles accounting Corporate secretarial services Consolidation Tax Our international tax network helps you navigate through the challenges of cross-border tax planning and administration to optimize outcomes in a commercially viable and practical way. Dietmar Klos dietmar.klos@lu.ey.com Our services: Strategic tax planning Product and deal structuring Tax and regulatory compliance Transactional due diligence Structural and operational and risk reviews Financial Services and Risk Management We provide banking risk management services and expertise on all prudential requirements on Securitization positions. Vincent Galand vincent.galand@lu.ey.com Our services: Risk management Risk analysis Asset servicing advisory IT consulting The AIF Club Mireille Pourpognot mireille.pourpognot@lu.ey.com Securitization in Luxembourg 13

16 EY Assurance Tax Transactions Advisory EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com Ernst & Young S.A. All Rights Reserved. ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. ey.com/luxembourg