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Make-or-buy, exemplified by a Luxembourg Securitisation Vehicle

We often receive inquiries from people who have set up a Luxembourg Securitisation Vehicle on their own and realize in retrospect that this is only a small, simple part of the overall solution and that many more hurdles and costs are involved. People put themselves in such a difficult position for different reasons and often such adventures end in a financial loss. We want to identify some common misconceptions and help you avoid these problems using our platform.

A Securitisation Vehicle is only one part of the solution to offering securitisations commercially or for your own projects as a sponsor or so-called originator. Over the years, we have encountered several cases in which an issuer or so-called securitisation vehicle has been set up independently or through a legal structurer. Once the issuer has been created, the sponsor cannot obtain cooperation with a paying agent due to his lack of experience in this field. In general, paying agents prefer not to work with inexperienced newcomers; if they do, they often overcharge because they know in advance that the partnership will be work intensive due to the lack of experience. In addition, onboarding such an issuer is very time consuming.

Running your own issuer also requires an administrator or a dedicated team to fulfill this demanding role. As an inexperienced individual, it is rarely possible to perform all these tasks by yourself. Therefore, a sponsor needs professional support, which can be achieved by outsourcing. This outsourced team ideally has deep knowledge and experience from which to draw, even in highly complex cases. In addition to the necessary product documentation (the KYC on the parties involved and possibly the AML Duty on the individual investors), the administrator also acts as a calculation agent and is thus additionally responsible for the product life-cycle management.

Last but not least, the Asset Under Management (AUM), and therefore the volume of transactions, plays an important role. Newcomers rarely get the conditions of established sponsors of such issuers, which benefit from much better conditions from the administrator, paying agent and the necessary auditing on the created compartments.

A sponsor of an issuer will also incur additional costs for effective product launches. In the case of products for any external third parties, these one-time and recurring costs can be passed on and additional revenue can also be generated via a commercial offering. The issuer has to pay annual fees on the entire structure and its compartments, which require a minimum volume or must generate sufficient margin overall to enable it to operate profitably on the bottom line. Even in the absence of this necessary revenue, which is often another problem for the sponsor, these annual costs must still be paid.

Selling an unprofitable issuer is a difficult task and the associated paying agent may not offer terms that would be of interest to a potential buyer. If instruments are already included, the associated costs are reduced, and there may be the question of whether the projects included fit the sponsor's risk appetite. Here, possible payment defaults could follow and pose a potential reputational risk and thus a loss of revenue. This may also be a motive for the sale of an already running structure. In the end, one is left sitting on the issuer and has to bite the bullet until the products held inside mature, at which point they bear the associated recurring charges.

For these reasons, we work as a platform with established sponsors who have the volume and experience to avoid such stumbling blocks. We can cover such services at very competitive prices, considering all factors. A single financial product through such a structure is just as safe as a product from your own issuer, and running your own issuer can quickly become a cost trap if you don't have enough AUM. Obviously, one pays for the commercial offering of this solution provider, but receives a smoothly functioning clockwork without the mentioned problems and risks. If a client wants to have their own issuer for marketing reasons, we can offer this with all the necessary elements. However, most of our clients are better served with a compartment solution and could benefit from the reductions of an issuance program for multiple projects.

Our solutions are not limited to Luxembourg, which has only been taken as an example and is the preferred choice of most clients. We offer various other solutions from other jurisdictions following the same model and at the commercial pricing of our cooperation partners, without additional surcharges on our part. Benefit from our expertise and put yourself in good hands. We will gladly accompany you to your desired goal.


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