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08 March 2016

Legal nature of hybrid instruments CPEC

The question on how CPEC (Convertible Preferred Equity Certificates) has to be treated was recently raised during a judgement of the Luxembourg courts.

The courts was asked to analyse and decide on the legal nature of CPECs, a debt instrument often used by corporate private equity or hedge fund structures. The court has confirmed  that, under the Luxembourg law, CPECs are debt securities which do not give the right to a share in the profits of the company and from an accounting perspective, they are considered as liabilities in the balance sheet..

By this judgement, Luxembourg has given assurance to the Luxembourg Finance Industry that the current practice for CPEC in Luxembourg and other countries is well adapted and can continue.

CPEC are PECs (preferred Equity Certificates) which are potentially convertible into shares. The choice between PECs and CPECs will depend on the country in which the issuer and the lender are resident

Creatrust has in-house expertise on hybrid instruments and can assist their clients in the issuance of a range of hybrid instruments suitable for a number of different types of assets.

 

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