The Luxembourg Securitisation Law allows for contractual provisions that are valid and enforceable and which aim to protect the securitisation vehicle from the individual interests of involved parties, consequently enhancing the securitisation vehicle’s protection as follows:
- Limited-recourse provision: Limited recourse means that the rights of the investors and creditors of a compartment are limited to the assets of such compartment; and
- Non-petition provision: Non-petition means that investors and creditors may waive their rights to initiate insolvency proceeding against the securitisation vehicle. This clause protects the securitisation vehicle against the actions of individual investors of one compartment affecting the operation of the other compartments.
eppf has opted to benefit from such contractual arrangements which function as if each department were a separate legal entity.
Therefore, each compartment can only be liable for the obligations associated with the assets it actually holds or can realise. In order to enhance the investors’ position for regress, eppf provides in its standard documentation for a guarantee on first demand. In case of non-payment by the guarantor under the Back-to-Back Business (as defined below), investors enjoy the freedom to claim their payments directly against the guarantor under such ‘first demand’ guarantee. A guarantee on first demand means that the beneficiary of such guarantee can pursue its claim against the guarantor without The guarantor is obliged to pay and cannot make any defences at the time of the claim; defences can only be put through later. If the claimant didn’t actually have a right to the claim, he will need to return the money received (principle of “first pay, then sue”).