What types of collateral/security are typically granted to investors in a securitisation in your jurisdiction?
It should be noted that French securitisation entities are bankruptcy-remote by virtue of the law. Therefore, investors generally do not seek security on their assets, although this has been permitted since a 2008 ordinance whereby French securitisation entities are allowed to provide collateral or security interests to investors over the receivables or other assets held by the fund. There is no specific requirement in relation to the type of security. Consequently, a pledge can be created over securitised receivables.
Credit enhancement is also possible through guarantees provided by:
- the originator;
- the originator’s affiliate;
- a credit establishment; or
- an insurance company.
Other methods include the issuance of specific units, over-collateralisation or cash reserve funds.Perfection
How is the interest of investors in a securitisation in the underlying security perfected in your jurisdiction?
When a pledge of receivables is created in favour of investors, the mere execution of the pledge agreement is sufficient to ensure perfection of the pledge towards third parties. Pledge notification improves protection but is not a condition of the pledge’s validity.
More generally, protection of the investor’s interest is ensured by the French securitisation entity’s management company. To some extent, the management company plays the same role as a security trustee because it will ensure that all securitised receivables are collected and the corresponding collections are distributed in accordance with the fund’s regulations.Enforcement
How do investors enforce their security interest?
As described in question 26, the management company of the securitisation entity will enforce any security interest or right created in favour of the securitisation entity.
If the investors have been given any security interest in the fund’s assets, they should be able to enforce it through their representatives if the securities are bonds governed by French law, and if a bond representative has been appointed.Commingling risk
Is commingling risk relating to collections an issue in your jurisdiction?
In securitisation transactions where the originator remains in charge of the collection of the securitised receivables, there is a risk that, upon a bankruptcy affecting the originator, the proceeds of the securitised receivables are commingled with the assets of the originator and retained by the bankruptcy administrator.
This risk can be avoided or mitigated by creating a special collection account dedicated to the collection of the securitised receivables. The sums credited on this account are not available to the creditors of the originator if it becomes bankrupt, according to article D214-228 of the MFC.