The €942m CFHL-1 2014 is the inaugural step in CFF’s plan of cutting risk by €1bn–€2bn a year through securitisation. It is also the first fully public French RMBS since 1995, according to CFF, and is the first in the country to achieve full deconsolidation of risk. Considering the dearth of issuance from this sector, re-engaging with investors to sell this unique package was an impressive feat.
“Securitisation technology worked really well to get to the goal … and the consequent benefit for their leverage ratio,” said Matthew Gahr, a director in the securitised products group of joint arranger Credit Suisse.
To achieve its aim – allowing CFF to claim capital relief – the issuer stripped out the standard date-based call option and introduced a re-marketable Class A2-A tranche. Retaining a call option would have scuppered the objective as it would not display sufficient risk transfer.
The A2-A notes are remarketed after a five-year average life. If not sold, the maturity extends by a further five years and the coupon doubles from three-month Euribor plus 65bp. A shorter three-year A1 note tranche sits above this tranche and is repaid from the cashflows of the underlying assets.
Removing the call allowed the lower-rated tranches not subject to remarketing to be more closely matched to the duration of the underlying loans, permitting 17-year bonds – attractive instruments for those investors looking for longer duration than is typically on offer in securitisation.
One investor said there was a “good chance that this … could become the benchmark for how full capital structures get done going forward”.
“It covers the whole spectrum. The A1 amortises, the A2-A is remarketing and at the end you get mezzanine and junior with long WALs,” he said. This form of securitisation “will have something for everyone”.
Regulations were even re-written after this deal was priced in May. Draft documents circulating at the time of marketing only referred to pure RMBS, whereas some 20% of Foncier’s portfolio was guaranteed residential home loans.
European rules were subsequently changed to include “fully guaranteed residential home loans” in LCR and Solvency II texts to take these assets, prevalent in the French market, into account. So this structure defines the market in more ways than one.
Investors were eager to be involved after marketing showed French mortgage securitisation in a clearer light after years without supply.
It was a full-on public syndication through arrangers Credit Suisse and Natixis, and leads JP Morgan, Lloyds Bank and RBS. Orders exceeded €3bn and the paper was sold to 121 accounts – a much higher number than usual for European structured finance deals.
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