Open Your Compartment in an Existing Luxembourg Securitization Vehicle

A Luxembourg securitization vehicle (SV) is a legal entity — typically formed as a company or fund — that acquires or assumes risks associated with assets or receivables and finances them through the issuance of securities to investors.

Under the Luxembourg Securitization Law of 22 March 2004 (as amended in 2022), these vehicles can take two forms:

• Securitization Company (Société de Titrisation)
• Securitization Fund (Fonds de Titrisation)

Each securitization vehicle may comprise multiple independent compartments, each representing a distinct pool of assets, liabilities, and investors.

What Is a Compartment?

A compartment functions like a “sub-fund” or “sub-vehicle” within the securitization structure. Each compartment:

• Holds its own assets and liabilities.
• Issues its own securities.
• Operates independently from other compartments.
• Has ring-fenced risks and profits.

This legal segregation ensures that one compartment’s obligations cannot affect another.
For investors, this translates to asset isolation, tailored investment strategies, and clear accounting transparency — all within one legal entity.

Why Open a Compartment Instead of Creating a New Vehicle?

Establishing a new securitization company in Luxembourg involves several steps: drafting articles of association, appointing directors, opening bank accounts, obtaining notarial approval, and registering with the Luxembourg Trade and Companies Register.
While efficient, the process can still take several weeks and incur significant setup and ongoing costs.

Opening a new compartment in an existing SV, however, is faster, cheaper, and operationally lighter.
Below are the main advantages.

Key Advantages of Opening a Compartment

1. Speed of Implementation

Opening a new compartment can often be done within days.
Since the securitization vehicle already exists and has all regulatory, corporate, and accounting structures in place, investors can immediately focus on their transaction.

2. Lower Setup and Maintenance Costs

There is no need to incorporate a new entity, appoint directors, or establish a separate administration.
The compartment shares the vehicle’s infrastructure (legal, accounting, auditors, custodian, etc.), dramatically reducing costs.

3. Full Legal Segregation

Each compartment’s assets and liabilities are segregated under Luxembourg law.
Investors enjoy the same protection as if they owned an entirely separate vehicle.

4. Customizable Structure

Each compartment may have its own investment strategy, asset pool, cash flow waterfall, and classes of securities (equity, bonds, notes, or profit-participating instruments).

5. Flexible Tax Treatment

Luxembourg securitization vehicles benefit from tax neutrality: income generated by securitized assets is offset by deductible payments to investors, resulting in minimal or zero taxable profit at the vehicle level.

6. Regulatory Flexibility

Unless the securities are offered to the public on a continuous basis, the vehicle remains unregulated by the CSSF (Commission de Surveillance du Secteur Financier).
This makes the structure suitable for private placements or institutional transactions.

Typical Investors and Use Cases

Opening a compartment within an existing securitization vehicle suits a wide range of professional investors, including:

• Family offices seeking asset-backed investment structures.
• Private equity firms securitizing participations or fund units.
• Venture capital funds transforming future cash flows into tradable securities.
• Real estate investors financing income-producing assets.
• Corporate groups optimizing capital structure or isolating project risks.
• Entrepreneurs securitizing intellectual property, royalties, or digital assets.

For example:

• A Germany real estate developer may securitize a rental income stream from a single property within its dedicated compartment.
• A Spanish private equity fund may use separate compartments to issue profit-participating notes linked to portfolio company dividends.
• A Swedish renewable energy operator may use a compartment to finance future receivables from long-term power purchase agreements (PPAs).

Legal Structure of the Compartment

Each compartment is governed by the constitutional documents of the securitization vehicle, typically defining:

• Asset ownership and management rights
• Issuance rules for securities
• Payment priorities
• Accounting and reporting requirements

The compartment may issue securities linked solely to its assets, with repayment rights strictly limited to its proceeds. Investors are therefore protected from the risks of other compartments.

Compartment details are often recorded in internal resolutions or schedules maintained by the vehicle’s board or manager, rather than filed publicly.
This maintains confidentiality while ensuring full traceability for auditors and investors.

Accounting and Reporting

Each compartment maintains separate accounts under Luxembourg Generally Accepted Accounting Principles (Lux GAAP) or International Financial Reporting Standards (IFRS).
The financial statements can be consolidated at the vehicle level, but compartment-level results remain identifiable and ring-fenced.

This structure ensures transparency, enabling investors and auditors to track the performance and cash flows of each compartment independently.

Taxation of a Compartment

Luxembourg’s securitization regime ensures tax neutrality when properly structured.

The securitization vehicle is typically fully taxable, but all income and gains related to securitized assets are offset by deductible payments to investors, leading to no residual taxable income.

No withholding tax applies on payments to non-resident investors.

No VAT applies on the issuance of securities.

Each compartment may have its own cross-border tax treatment depending on the underlying asset and the investor’s jurisdiction.

For EU investors, Luxembourg’s network of double taxation treaties and EU directives can further enhance efficiency.

Steps to Open Your Compartment

Opening a compartment involves the following streamlined process:

Define the Asset or Risk to Securitize
Identify the underlying exposure — real estate, receivables, equity participations, or future income streams.

Select the Existing Vehicle
Work with a Luxembourg administrator, such as Damalion, to identify a pre-approved securitization vehicle suitable for your transaction.

Draft the Compartment Term Sheet
Specify the compartment’s purpose, asset type, securities to be issued, and expected cash flows.

Board Resolution and Approval
The vehicle’s board approves the compartment and authorizes the issuance of securities or notes.

Execution and Subscription
Investors subscribe to the compartment’s securities, and funds are allocated to acquire or manage the underlying assets.

Ongoing Reporting and Management
The compartment operates independently, with periodic accounting and cash flow monitoring.

This process can be completed in as little as two to three weeks for private placements.

Example: Real Estate Securitization Compartment

A European family office wants to finance the acquisition of a €20 million income-producing office building in Paris.
Instead of setting up a new company, the investor opens a dedicated compartment within an existing Luxembourg securitization vehicle.

The compartment issues notes subscribed by the family office.

Rental income is used to repay the notes and yield interest.

The structure isolates the property’s risk and allows for efficient exit through resale or note redemption.

This arrangement avoids complex incorporation steps, optimizes cross-border taxation, and ensures clean accounting segregation.

Opening a compartment within an existing Luxembourg securitization vehicle offers a practical, cost-effective, and legally robust way to structure investment or financing transactions.
It enables investors to benefit from Luxembourg’s financial infrastructure and legal certainty — without the overhead of establishing a new entity.

Whether securitizing real estate, private equity participations, royalties, or receivables, the compartment approach combines speed, flexibility, and regulatory efficiency.

Damalion supports investors, entrepreneurs, and family offices in establishing or joining Luxembourg securitization structures with full compliance, governance, and tax alignment. Our experts coordinate vehicle selection, compartment setup, and ongoing management under Luxembourg law. Please contact your Damalion expert now.