France is aiming to modify its existing insolvency law to grant secured creditors a stronger hand in distressed situations before the companies actually reach "formal" insolvency. If this is implemented, securitization activity in France could pick up.

The country joins several of it continental counterparts, including Spain and Italy, which are expected to implement final bankruptcy law modifications as early as the beginning of 2004. France is further off, however, as the country has only just initiated a proposed draft.

"France has had a bad image in insolvency proceedings in the past; nonetheless, in all proceedings, we have had a high rate of success in recovery," said one market source. "The French have simply been poor at marketing their laws, but what we are seeing now in France, and in Europe in general, is a trend that brings our insolvency proceedings more in line with American proceedings."

Up until now, the country has received a low ranking from Standard & Poor's, which pronounced its legislation the least secured debtholder-friendly. This has, in the past, dampened any substantial evolution for whole business/ corporate securitizations.

According to S&P's European corporate securitization team, insolvency proceedings in France allow creditors limited access to assets that can be seized. One feature of the French insolvency regime is the power and involvement of commercial courts in pre-insolvency and formal-insolvency proceedings. The process is lengthy and further complicated by the fact that security may only be enforced by a judicial sale or a foreclosure order, directed and controlled by the courts.

The new draft aims to speed up the liquidation process and provide secured creditors with better access to securities, explained one market source. "In terms of insolvency, as the securitization is based on a transfer of assets, the new draft will be much more creditor-friendly in that it will allow the creditor to organize that transfer of assets well before an issuer becomes insolvent," the source explained.

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