The French securitization market has experienced a significant boom over the last 18 months, as corporates and French financial institutions alike learn to reap the benefits of an increasingly flexible and reliable legal framework introduced by the law of December 23 1988. This established a new type of entity, the fonds commun de créances (FCC) aimed at providing market participants with a vehicle for securitization structures. In so doing, France was the first civil law country to deal successfully with the constraints imposed by the civil law regime in terms of the transfer of assets and create an entity capable of matching the flexibility available in Anglo Saxon jurisdictions.
FCCs are created for the purpose of acquiring and holding a portfolio of receivables and issuing securities representing a pro-rata participation in the portfolio.
A series of constructive amendments to the initial legislation have encouraged a large number of transactions in the French market which would previously have been lost to other jurisdictions perceived as being more securitization-friendly.
Of particular note among the most recent amendments to the French legislation is the ability for an FCC to acquire receivables relating to distressed debts, to assign receivables relating to matured or accelerated debts before the FCC's liquidation, and to acquire future receivables. In addition, FCCs are now authorized to be divided into sub-funds, each made up of a different category of receivables represented by a separate issue of securities, thus allowing FCCs to compete successfully with multi-seller securitization vehicles.
The upsurge in securitization deals in France is set to continue owing to a number of favourable factors in the French financial sector.
A reform of the solvency ratios applicable to French financial institutions is being discussed and is due to be implemented by 2002. These will have an impact on the allocation of capital regulations which, going forward, will take into account the credit rating of the financial institution's counterparty, rather than the value of the transaction. One of the effects of the reform is that a new category of assets will fall within the ambit of the regulations, that of the yield generated by securitization transactions.
In addition, the ever-widening scope of assets capable of being acquired by FFCs is attracting the attention of new sectors of the French economy, such as insurance and e-commerce, as well as the public sector, notably local authorities.
These factors promise to secure France's standing in the global securitization market.