The amendment of the legal framework for French SPVs is expected to significantly impact the structuring landscape of French securitizations, making transactions backed by higher yields - from the easier to the more complex - less difficult to structure.
"The new framework offers a greater range of possibilities in terms of sales of assets and authorizes the transfer of assets under foreign law that will be deemed effective," Societe Generale analysts said. "It provides greater operational flexibility over the life of the vehicles."
Directive 2008-556 was born from the European Union (EU) requirement to implement its 2005 Reinsurance Directive, which authorizes member states to allow reinsurance through the financial markets as an alternative to conventional reinsurance. The new French amendment will accommodate this aspect of the EU directive as well as several additional points, which include the improvement of the legal framework, increased transparency and improved safety of the structured operations.
Two types of SPV are now possible under the new law. The first, SocGen analysts said, is similar to former Fonds Communs de Creances (FCC). However, this takes the name of Fonds Communs de Titrisation (FCT). On transfer, the insurance risk will not be classed as an asset or an FCC. The second type, named Societe de Titrisation (ST), is a company with restricted status and objective similar to the U.K. unit trust or U.S. mutual fund. The directive provides that the insolvency law will not apply to the ST. The new regulations also allow receivables to be transferred into FCTs under French or foreign law.
"Thanks to this fresh legislation, new transactions will be possible, backed by more complex assets carrying higher yields," SocGen analysts said. "This could restart a primary market, which is currently expensive for originators as spreads remain wide. Unfortunately, some aspects are not addressed in accordance with this proposed law, such as the fiscal treatment of the newly created Societe de Titrisation. This major hurdle is delaying the use of these structures."
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