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• 1: Sociétés de crédit foncier ("SCFs") are the French special-law based covered bonds issuers. They are governed by Article L.515-13 and seq. of the French Monetary and Financial Code (the "Code") relating to SCFs and, as credit institutions, by the general banking regulation including Regulation 97-02 of 21 February 1997 relating to internal control in credit institutions and investment companies.
• 2: Under Article L.515-13 of the Code, SCFs are allowed either to grant or to buy mortgage loans or exposures on public sector but generally, they are not the originator of the assets.
• 3: The special bankruptcy regime applicable to the SCF results from Articles L.515-19 and Articles L.515-25 to L.515-27 of the Code. The main features of this regime are as follow: -the judicial liquidation of a SCF does not accelerate the payment of the privileged debts of the SCF that are paid on their contractual due date and with priority over all other debts. -until the privileged debtors are fully paid off, no other creditor of the SCF may avail itself of any right over the SCF's property and rights. -the judicial reorganisation or liquidation of a company holding shares in the SCF can’t be extended to the SCF. As a result, SCFs are totally bankruptcy remote and enjoy full protection from the risks of default by their parent company or by the group to which they belong.
• 4: Exposures on public sector entities under leasing format are also allowed.
• 5: Others are, as more described in Article L.515-15 of the Code, Central administrations and Central banks not belonging to the above mentioned geographic scope but to States qualifying as a minimum for the credit quality assessment step 1 (step 2 up to 20% of the privileged liabilities) by a rating agency recognised by the French banking supervisor.
• 6: Others are States not belonging to the above ticked geographic scope but qualifying as a minimum for the credit quality assessment step 1 by a rating agency recognised by the French banking supervisor.
• 7: In addition to the above mentioned assets, SCFs are allowed to hold replacement assets up to 15% of the amount of their outstanding privileged debt issued(covered bonds and other debt issued benefiting from the privilège of Article L515-19 of the Code). Replacement assets are defined as sufficiently secure and liquid assets as more described in Articles L.515-17 and R.515-7 of the Code.
• 8: According to Regulation 99-10 relating to SCFs, real estate properties are valued on a yearly basis. They are valued conservatively, excluding any element of a speculative nature. Valuations have to be made on the basis of the lasting, long-term characteristics of the real estate properties, normal market and local conditions, the current use of the real estate and other uses to which it could be assigned. This mortgage lending value shall be determined clearly and transparently in writing and may not exceed the market value.
• 9: Pursuant to Article R.515-2 of the Code, a mortgage or guaranteed loan can only be refinanced by privileged debts in the limit of the smallest following amount : - the outstanding principal amount of the loan, - the product of the financing share of the loan and the value of the real estate. The financing share of the loan is equal to: - 60 per cent of the value of the real estate given in guarantee, - 80 per cent of the value of the real estate given in guarantee when the loan has been granted to individuals in order to finance the building or the acquisition of a housing or in order to finance the acquisition of the building land and the construction of the housing. - 100 per cent of the value of the real estate when the loan benefit from the guarantee of the Guarantee Fund for Social Home Ownership (FGAS). The acquisition by a SCF of senior units of RMBS is subject to similar rules as more described in Article 5.515-4 of the Code.
• 10: SCFs are required to comply with numbers of specific management rules intended to ensure matching of assets and liabilities in terms of interest rates and maturities. Exposure to market risk is required to be mitigated by Regulation 97-02 of 21 February 1997 relating to internal control in credit institutions and investment companies.
• 11: The SCF must ensure that it comply, at any time, with the regulation relating to the coverage ratio and ALM congruency.
• 12: By law. Under Article R.515-7-1 of the Code, SCF must, at any time, manage their liquidity risk over a period of 180 days. In addition to specific rules, SCF are required to comply with Regulation 97-02 of 21 February 1997 relating to internal control in credit institutions and investment companies. Exposure to liquidity risk is required to be mitigated by Article 31 of Regulation 97-02.
• 13: Replacement assets are a key instrument to achieve the "natural" matching. In addition the SCF have a direct access to the French Central Bank as credit institutions, even after the bankruptcy of the mother company. The law allow them to enter into repo transactions.
• 14: Other is the Specific controller created by Article L.515-30 of the Code.The specific controller according to Regulation 99-10, controls the adequate matching of maturities and interest rates and alerts the French Commission Bancaire should he considers the levels are insufficient.
• 15: Article L.515-20 of the Code requires that, at any time, the total amount of the SCF’s assets must be greater than the outstanding amount of its privileged debt. The 102% minimm level of overcollateralization is provided in Article R.515-7-2 of the Code.
• 16: In addition to all measures aiming at ensuring the liquidity of the SCF, SCF are incorporated as credit institutions and have a direct access to the French Central Bank refinancing, even after the bankruptcy of the mother company. The law allows them to enter into repo transactions.
• 17: The cover pool monitor independent from the issuer is the Specific controller created by Article L.515-30 of the Code.
• 18: They benefit from the privilege of article L.515-19 of the Code under which the have the right to be paid by preference to all others creditors including the State.
• 19: All the assets of the OFs issuing credit institution secure the OFs and other privileged debtors of the credit institution.
• 20: The sums due under the derivatives entered into by SCFs to cover their assets and liabilities elements and to manage or cover the global risk on their assets, liabilities and off-balance-sheet items have privileged status. The sums due under derivatives used to cover the non-privileged debts of the SCF do not have such privileged status.