Credit Foncier’s offering of €1
billion residential mortgage backed securities (RMBS) has been
hailed as the deal that
could reopen the French securitisation market. But it has
also revealed key regulatory issues that will determine the
fledgling market’s future.
The bellwether deal, which was three times
over-subscribed, securitised a portfolio of 8,900 loans, worth
It was the first French RMBS securitisation to
achieve full deconsolidation, meaning that the assets will
receive off balance sheet treatment. It was also the first RMBS
transaction to be fully placed with investors since 1995.
"It’s a sign that international
investors are interested in French RMBS," said Jonathan Lewis,
a Paris-based partner with Clifford Chance. "Its success could
tempt other banks to issue into the RMBS market."
Credit Foncier itself has expressed an interest in a long-term strategy of
securitisation. Following its maiden issue, the French
mortgage provider intends to issue €2 billion RMBS a year
to deconsolidate assets as Basel III begins to bite.
Credit Foncier’s issuance of €1
billion RMBS notes could reopen the French securitisation
It included re-marketable securities, which permit the
re-fixing of the coupon on the class A2 note series every
However, the deal has also sparked debate about the
French mortgage market, in which guarantee-protected
residential mortgage loans are a dominant
The deal included what are known as re-marketable
securities. These permit the re-fixing of the coupon on the
class A2 note series every five years, notwithstanding the long
maturity of the underlying home loans.
In another first for the French market, Credit Foncier
retained five percent of the nominal value of the loan
portfolio to comply with the capital requirements regulation
(CRR). "These assets were randomly selected by an independent
expert to ensure a representative sample of the whole
portfolio," Lewis told IFLR.
However, the deal has also sparked debate about the nature
of the French mortgage market.
Concerns have been voiced about the guaranteed
nature of 20% of the collateral pool of Credit
Foncier’s deal. In contrast with loans backed by a
legal mortgage, guaranteed loans do not qualify for the Prime
Collateralised Securities (PCS) label, though Credit Foncier
did not seek such a label in this issuance.
"Historical default rates
on loans guaranteed by specialist guarantee
organisations are low"
It could also mean the deal isn’t eligible for
the Basel Committee’s liquidity coverage ratio
(LCR) criteria - the final version of which is yet to be
published - which state that RMBS must be backed by
first-lien residential mortgages.
This type of residential mortgage loan accounts for more
than half of the French market.
However, leading lawyers have queried the difference in
treatment between the two loan types, which some fear will lead
to a fragmentation of the market.
Some market participants have told IFLR that guaranteed
loans should be assimilated to home loans secured by mortgage
loans. "They should ultimately be given the same regulatory
treatment and similar treatment by the PCS board," said one
industry insider, who preferred to remain anonymous.
One lawyer has called for a constructive dialogue involving
both the PCS other stakeholders about how French home loan
guarantee organisations work.
"Historical default rates on loans guaranteed by specialist
guarantee organisations are low," said the counsel. "They have
to go through two credit approvals – one from the
originating bank and another from the guarantee
The €804 million senior
notes, rated AAA/Aaa (by Fitch and Moody's respectively), were
listed on the regulated market of the European Luxembourg Stock
Exchange on May 27.
The prospectus is available here
advised Credit Foncier as drafting counsel. Freshfield Bruckhaus Deringer advised joint lead
managers Crédit Suisse, Natixis, JP Morgan, Lloyds Bank
and the Royal Bank of Scotland.
Crédit Foncier was
also advised by Herbert Smith Freehills, who conducted a legal
review of the loans comprised in the portfolio.
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