New legislation could provide the basis for growth in French securitization volumes, according to Standard & Poor’s. The ‘Law on Financial Security’ was enacted on August 1, 2003, although several provisions, including some pertaining to securitization, are subject to ministerial decree, which is expected to be published by the end of 2003. ‘Certain legal restrictions in the 1988 securitization law on fonds communs de créances (FCCs) have contributed to France lying sixth in the European securitization league tables,’ said Nicolas Malaterre, credit analyst at Standard & Poor’s Structured Finance Ratings group in Paris. ‘Clearly, the size of the French securitization market is not in line with the volume of assets that could be securitized.’ Malaterre predicts that this may change when the provisions are decreed. ‘Under the new law, direct issues of FCC debt instruments – such as notes, bonds, or CP – in the domestic and international markets will be possible, although the FCC must still issue units representing these assets,’ he said. Another change concerns derivative instruments. ‘Market participants expect that FCCs will be allowed to act as credit protection sellers in synthetic CDO transactions,’ said Solange Fougère, legal counsel to Standard & Poor’s Ratings Services in Paris. ‘By taking on the role of swap counterparty and issuer, future FCCs could have a substantial effect on the European synthetic CDO market.’ The new law also clarifies certain legal aspects of the transfer of receivables to FCCs, although the French parliament’s refusal to insulate the transfer of future receivables from insolvency proceedings is considered a source of disappointment among market participants.
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