Last week ASR reported that France was still awaiting implementation of its new securitization decree issued in August 2004. The Financial Security Law was actually published on November 26, 2004 and fully replaces the decree of 1989, significantly altering the basis for Fonds Commun de Creances (FCC).

The new securitization decree makes clear that FCCs may enter into, subject to certain conditions, credit derivatives agreements as protection buyers or as protection sellers. FCCs are now eligible to issue long- and medium-term notes in addition to issuing units and will have access to the CP markets via the titres de creances negociables. These notes are more attractive to foreign investors, while units will continue to appeal to the domestic investor.

"The issue of weather an FCC may issue debt instruments such as bonds or commercial paper has been positively settled by the 2003 Financial Security Act," explained one industry source. "The implementing decree referred to above only specified the terms and conditions of such issuance and expressly set forth, for instance, that an FCC may issue debt instruments governed by a foreign law."

The introduction of the concept of comptes d'affectation speciale (specially dedicated accounts), which would be treated as segregated bank accounts administered by the originator as servicer to credit collections on securitized assets has been authorized as a principle by the new law. The decree specifies the terms and conditions governing the opening and operation of these accounts. The FCC's rights over this dedicated account are preserved even in the case of a servicer insolvency. The dedicated account is created through an agreement between servicer, the account-holding ban, the management company and the custodian of the FCC - the FCC maintains exclusive rights over the sums credited to the account, which can not be merged with any other account.

FCCs will also be allowed to enter into derivative agreements, provided they meet the criteria set forth by the decree. "The extent of the changes suggests that the use of FCC will grow particularly in the areas of repackaging, credit derivatives, etc," reported Merrill Lynch analysts. "We find these changes positive for the overall securitization market in France."

Copyright 2005 Thomson Media Inc. All Rights Reserved.

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