Overview
Bill of law n° 8761, amending the amended law of 22 March 2004 on securitisation (the "2004 Law"), was deposited with the Luxembourg Parliament on 8 June 2026. The Bill is expected to be enacted before year end. Building on the significant 2022 reform, it seeks to modernise the existing framework, enhance legal certainty, and align the 2004 Law with current market practice. The proposed changes are of particular relevance to sponsors, arrangers, originators and investors active in Luxembourg securitisation structures, and reflect the Luxembourg legislator's continued responsiveness to evolving market practice. This update summarises the key changes.
1. Expanded Financing Methods
Securitisation vehicles ("SVs") will be permitted to finance themselves through any form of financing or financial commitment, and not solely through the issuance of financial instruments or the conclusion of loan agreements. This broadening is intended, amongst other things, to facilitate Islamic finance structures, where the use of traditional debt instruments or loans is not permitted. Public offerings will continue to be financed exclusively through the issuance of financial instruments.
2. Asset Segregation on Management Company Insolvency
The Bill expressly codifies that the assets of a securitisation fund managed by a management company do not form part of the management company's estate in the event of its bankruptcy and are therefore beyond the reach of the management company's creditors. This mirrors the equivalent protection already applicable to Luxembourg investment funds and removes any residual ambiguity on the point, bringing Luxembourg in line with established fund structuring principles.
3. Cross-Compartment Investments
Subject to the conditions set out in its articles of association, management regulations, or issuance documents, a compartment of an SV will be permitted to invest directly or indirectly in one or more other compartments of the same SV. Circular investments are strictly prohibited: a compartment may not invest in another compartment that already holds an investment in it.
Where the investment is made through debt instruments, the investing compartment will enjoy the full rights of a creditor, including voting rights and entitlement to financial proceeds. The Bill also expressly disapplies Article 1300 of the Civil Code, ensuring that a cross-compartment debt investment is not extinguished by operation of the civil law doctrine of confusion. These changes should facilitate increasingly sophisticated multi-layer and platform structures using Luxembourg compartment-based vehicles.
4. Security and Guarantees for Third-Party Obligations
The Bill clarifies the circumstances in which an SV may grant security or guarantees over its assets. In addition to securing its own obligations, an SV will be expressly permitted to provide security or guarantees: (i) for the obligations of a third party directly or indirectly connected to the securitisation transaction; and (ii) for the obligations of a third party incurred in connection with a direct or indirect investment in the transaction.
This change responds to the increasing complexity of post-2022 structures, which involve multi-tier financing, cross-collateral arrangements, and multiple creditor classes. The existing drafting had given rise to divergent interpretations in practice; the Bill resolves this by restating the regime more precisely, in line with current market practice.
5. Wider Scope of Active Management
The Bill widens active management so that it may apply to any category of securitised asset, including equity and fund instruments, rather than being limited to debt securities and receivables. Active management remains subject to the condition that the financial instruments issued are not offered to the public, thereby restricting actively managed structures to professional or sophisticated investors.
The Bill also introduces a statutory list of portfolio operations that are expressly excluded from the definition of active management, recognising that even a passively managed portfolio cannot remain wholly static over the life of a transaction. These carve-outs cover, amongst others: replacement of defaulted or non-conforming assets; addition of assets during the initial ramp-up phase (up to one-third of the total transaction duration); addition of assets in the context of continuous issuances; replacement of matured or redeemed assets; and marginal adjustments to portfolio composition, asset allocation, or risk exposure. This should materially reduce execution risk for both managed and static structures.
6. Ranking of Floating-Rate Debt Instruments
The Bill clarifies the statutory subordination rules applicable to debt instruments issued by SVs. It confirms that floating-rate instruments (i.e., instruments bearing interest calculated on the basis of a reference rate (such as EURIBOR) plus a margin) rank pari passu with fixed-rate instruments and ahead of variable-return instruments. This resolves a point of interpretive uncertainty in ranking analyses that had become increasingly significant as floating-rate tranches grew more prevalent in structured transactions.
Key Takeaways
Taken together, the proposed amendments represent a meaningful step forward in the modernisation of Luxembourg's securitisation framework. They broaden the structuring options available to market participants, resolve a number of interpretive uncertainties that had emerged following the 2022 reform, and reinforce Luxembourg's position as a flexible and internationally competitive securitisation jurisdiction.
The Bill has now entered the parliamentary process, and its progress should be monitored closely. Market participants with existing or pipeline Luxembourg securitisation structures may wish to assess the implications of the proposed changes at an early stage. For further information, please contact any member of our team.
