New Developments in French Securitisation.

Transcription

1 New Developments in A new French decree relating to securitisation was passed on 24 November 2004 by the French Prime Minister and the Minister of Economy, Finance and Industry and was published in the Journal Officiel de la République Française 1 (the New Securitisation Decree ). The purpose of the New Securitisation Decree is to implement the provisions of the Financial Security Law of 1 August 2003 which contains significant changes to the legal regime of securitisation. The reform brings more flexibility to, and so should boost, the French securitisation market. The purpose of this memorandum is to highlight the main provisions of the New Securitisation Decree and the potential impact of its provisions on the French securitisation market. The key provisions of the New Securitisation Decree relate to the following: - Definition of management strategy - Ability to issue bonds and other of debt securities - Entry into credit derivative instruments - Extension of eligible assets - Bankruptcy-remote dedicated collection account - Extension of credit and liquidity enhancement techniques - Entry into repurchase transactions - Reinforcement of rights over security interests - Greater borrowing power 1 Decree no of 24 November 2004 (the Decree was published in the Journal Officiel de la République Française of 26 November 2004 (décret pris en application des articles L et L à L du Code Monétaire et Financier et relatif aux fonds communs de créances). The Decree was subsequently codified in article R to article R of the French Monetary and Financial Code (decree no of 2 August 2005 relating to the partie réglementaire of the Monetary and Financial Code). The French Monetary and Financial Code can be found on Legifrance website at Contents Introduction 2 The management strategy of FCCs 4 Issue of debt securities by FCCs 4 Credit derivative transactions 11 FCCs ability to securitise a larger variety of financial assets is expanded 12 Assignment and transfer of receivables and security interests 13 Credit and liquidity enhancements and guarantees 15 Operation of the dedicated collection account (compte d affectation spéciale) 17 Borrowings 18 Repurchase and temporary purchase transactions 20 Cash management and temporary investments 20 Transfer of assets and liquidation of FCCs 21 Custody and safekeeping of the underlying documents 23 Example of a potential new development in the French securitisation market: how to structure synthetic CDOs/CLOs under French securitisation law? 25 Conclusion 27 Contacts 29 Significant Securitisation and CDOs/CLOs Transactions on which the Linklaters Paris Securitisation and Structured Finance Group recently advised 30 Panel of the Most Significant T r a n s a c t i o n s on Which the Linklaters Paris Securitisation and Structured Finance Group Recently Advised 35 The Linklaters Paris Securitisation and Structured Finance Group 36 Linklaters Offices Worldwide

2 Introduction Background Developments in French securitisation law since 1988 On 23 December 1988 France introduced its securitisation legal regime with law no dated 23 December 1988 relating to collective investment schemes and debt mutual funds (loi n du 23 décembre 1988 relative aux organismes de placement collectif en valeurs mobilières et portant création des fonds communs de créances). It was codified in article L and articles L to L of the French Monetary and Financial Code (the Securitisation Law ). The Securitisation Law created a dedicated securitisation vehicle known as a Fonds Commun de Créances. Pursuant to article L of the Monetary and Financial Code, Fonds Communs de Créances ( FCCs ) (or mutual debt fund or securitisation fund ) are defined as a co-ownership (co-propriété) without legal personality (personnalité morale), the exclusive purpose of which is to acquire receivables and to issue units. FCCs are created upon the joint initiative (initiative conjointe) of (i) a management company (société de gestion) which must be licensed and supervised by the French Financial Markets Authority (the Autorité des Marchés Financiers) and (ii) a custodian (dépositaire) which is responsible for the custody of the assets of the FCC and the supervision of the decisions of the management company. Pursuant to article L II of the Monetary and Financial Code (as amended by the Financial Security Law of 1 August 2003), the custodian must be a credit institution (établissement de crédit) licensed in France, a French branch of a credit institution whose registered office is located in a member state of the European Economic Area or any other entity authorised by the Ministry of Economy. FCCs have no share capital, no board of directors and no employees. FCCs are not liable to insolvency proceedings under French law and, for that reason, are considered as bankruptcy-remote vehicles by rating agencies. The Securitisation Law was successively amended (i) in 1993, to authorise FCCs to purchase new receivables after the initial purchase date (from 1988 FCCs were not permitted to purchase additional receivables and could not be structured with a revolving period; from 1993 FCCs could issue bullet asset-backed securities instead of amortising asset-backed debt securities), (ii) in 1996, to authorise FCCs to issue additional units after the initial issue date (from 1988 FCCs were not permitted to issue additional series of units and could not be structured as a revolving issuers of asset-backed securities), (iii) in 1998, to authorise FCCs to purchase receivables from companies (from 1988 FCCs were only authorised to purchase receivables originated or transferred by credit institutions, insurance companies or the Caisse des Dépôts et Consignations) and (iv) in 1999, to authorise the creation of FCCs with compartments ( umbrella FCCs ) (from 1988 FCCs could not be structured as segregated or ring-fenced vehicles) /2006

3 Since 1988, FCCs have proved to be a robust and efficient instrument to securitise various classes of financial assets such as residential mortgages, consumer loans, credit card receivables, automobile loan receivables, commercial mortgage loans, insurance premium receivables and trade receivables (including sub-participations, future receivables, performing and non-performing receivables). Since 1999, certain FCCs have been structured as multi-series master trusts. The legal regime of FCCs has also proved to be sufficiently flexible to allow the structuring of recent whole business-type securitisations of lease receivables under French law. French securitisation law since the Financial Security Law of 1 August 2003 seeking more flexibility The Securitisation Law was amended by law no dated 1 August 2003 relating to Financial Security (loi de sécurité financière) (the Financial Security Law ). The Financial Security Law has significantly changed the securitisation regime in France by, among other things, authorising FCCs to issue various types of debt securities and enter into credit derivatives arrangements (enabling FCCs to be used for the purpose of synthetic securitisations) and creating the concept of dedicated collection accounts (comptes d affectation spéciale) which protect the rights of investors over cash flows generated by the securitised assets if the originator becomes subject to insolvency proceedings. Additional provisions of the Financial Security Law clarify and streamline the rules governing the transfer of assets and collateral from the originator to the FCC and the enforcement of the security interests attached to or securing the securitised receivables. New Securitisation Decree Most of the provisions of the Financial Security Law which amended the Securitisation Law required implementation by a decree. The original decree relating to FCCs was decree no dated 9 March 1989 (the 1989 Securitisation Decree ). The French Treasury, the Banque de France and the French Financial Markets Authority have established a working group with certain securitisation market participants in order to produce the draft of the New Securitisation Decree. The New Securitisation Decree superseded and entirely replaced the 1989 Securitisation Decree. The New Securitisation Decree was subsequently codified in Article R to Article R of the French Monetary and Financial Code. General tax treatment FCCs benefit from a very favourable tax regime. FCCs are exempt from corporation tax in France on the basis of article octies of the General Tax Code (Code général des impôts), and the transfer of the receivables to FCCs is exempt from any transfer tax, stamp duty or French Value Added Tax. According to a statement of practice (instruction) of the French tax authorities dated 17 October 1989, interest paid by an FCC to any holder who is not resident in France for tax purposes is exempt from the 16% New Developments in 3

4 withholding tax provided for under article 125 A-III of the General Tax Code, provided that (i) such investor is the person beneficially entitled (bénéficiaire effectif) to the interest payments and (ii) such holder gives evidence, to the payor of interest, that it is not resident in France for tax purposes. The management strategy of FCCs Article R of the Monetary and Financial Code creates a new legal concept for FCCs which was only applicable to collective investment schemes: the management strategy (stratégie de gestion). Pursuant to article R of the French Monetary and Financial Code, the regulations of the FCC must set out the management strategy of the FCC. An FCC will complete its management strategy by: purchasing receivables (it should be noted that the term receivables (créances) has a wide meaning and will include receivables (i.e. a monetary claim arising from an underlying agreement) and debt securities (see paragraph entitled Extension of Eligible Assets of FCCs below)); entering into credit derivative agreements in order to bear the credit risk in respect of one or more reference entities of any nature. In the first case (the purchase of receivables), FCCs will be structured as cash flow securitisation vehicles. In the second case (the entering into credit derivatives agreements), FCCs will be structured as synthetic securitisation vehicles and sellers of credit protection. Nothing in the Securitisation Law or in the New Securitisation Decree would prevent structuring FCCs as hybrid securitisation vehicles (i.e. partially cash flow and partially synthetic). Therefore it seems possible that the same FCC (or the same compartment of an FCC) may have two cumulative management strategies. In order to finance their management strategy, FCCs will issue units and may issue debt securities. FCCs may also borrow money. Issue of debt securities by FCCs Before 2003 FCCs were only permitted to issue one type of instrument Since 1988 FCCs were only authorised to issue one type of instrument: parts de fonds communs de créances or units. FCCs may issue senior units, mezzanine or subordinated units and residual units (to capture the excess spread ). Units may be issued in bearer dematerialised form (au porteur) inscribed in the books of any relevant clearing system or in registered dematerialised form (au nominatif). Holders of units have no voting rights. Although units are legally transferable securities (valeurs mobilières) and financial instruments (instruments financiers), certain investors expressed concern as to the appropriate characterisation of the units issued by FCCs /2006

5 under the applicable capital adequacy rules. Because of their specific legal nature, units can be viewed as equity-type instruments (especially junior subordinated units which can be customised with equity-type characteristics) rather than as mainstream asset-backed debt securities or straight debt instruments. Hence, certain categories of investors such as German insurance companies are reluctant to purchase units; likewise, U.S. investors prefer to purchase mainstream asset-backed debt securities. In its Opinion of 14 September 2004 relating to the draft securitisation decree 2, the European Central Bank (the ECB ) noted that units issued by FCCs are neither shares nor debt securities and therefore, due to their hybrid legal nature, might be considered unattractive to international investors. In its Bulletin of January 2005, the Banque de France 3 noted that units issued by FCCs cannot be classified among equity securities nor debt instruments. Under the Securitisation Law, when an investor purchases a unit, he acquires an interest in the co-ownership that is the FCC. Additionally, the applicable legal regime relating to units is very specific: the units represent the assets of the FCC and holders of units may not request that the FCC repurchase the units they hold. Article R I of the French Monetary and Financial Code provides that, on any given date, the liabilities (passif) of an FCC must comprise at least two outstanding units which represent the assets of the FCC. Pursuant to article R I of the French Monetary and Financial Code, the minimum nominal amount of a unit on the issue date is 150 euros (or its equivalent in other currency). It should be noted that FCCs will be the sole category of issuers of debt securities with no legal personality. The Securitisation Law and the New Securitisation Decree enable FCCs to issue debt securities In order to enlarge the investor base of FCCs, article L of the Monetary and Financial Code (as amended by the Financial Security Law) provides that FCCs may issue debt securities (titres de créances) in addition to units. Such debt securities are referred to in article L of the Monetary and Financial Code and include principally bonds or notes (obligations) and negotiable debt securities (titres de créances négociables, i.e. billets de trésorerie and bons à moyen terme négociables and/or commercial paper governed by any foreign law). Together with the possibility to enter into credit derivatives (see paragraph entitled Credit Derivative Transactions below), this is one of the most innovative provisions of the New Securitisation Decree. Holders of debt securities will be creditors of the FCC and as such, will rank prior to the holders of units. 2 3 ECB Opinion (CON/2004/30). Bulletin N 133 of Banque de France of January 2005 Modernisation of the French securitisation legal framework (page 70). New Developments in 5

6 Subject to the applicable priority of payments between units, debt securities and borrowings (see sub-paragraph entitled Subordination Orders of priority below) units and debt securities will be backed by the assets of the FCCs and are not considered general obligations of the asset sellers. Issue of bonds or notes FCCs may issue bonds or notes (obligations). Article R of the French Monetary and Financial Code does not provide any minimum nominal amount per note issued by FCCs. Therefore notes issued by FCCs may have a minimum nominal amount of one euro. Bonds or notes governed by French law may be issued in bearer dematerialised form (au porteur) inscribed in the books of any relevant clearing system or in registered dematerialised form (au nominatif). If issued outside France and governed by a law other than French law (e.g. English law) it may be possible to issue bonds or notes in the form of ordinary bearer securities. Issue of commercial paper FCCs may also issue negotiable debt instruments (titres de créances négociables) such as commercial paper (billets de trésorerie or bons à moyens terme négociables). Article R of the French Monetary and Financial Code does not provide any minimum nominal amount per titres de créances négociables issued by FCCs. Therefore, titres de créances négociables issued by FCCs must comply with the usual legal requirements (i.e. a minimum amount of 150,000 euros or its equivalent in other currency (pursuant to decree no of 13 February 1992 (as amended) relating to titres de créances négociables)). The ability of FCCs to issue commercial paper (and not only units ) may reduce the needs to structure repackaging off-shore vehicles the purpose of which is to purchase units and issue asset-backed commercial paper. Pursuant to the Bulletin of the Banque de France of January 2005, the Banque de France will be the market authority for any issue of titres de créances négociables by FCCs 4. Application of issue proceeds Pursuant to article R II and article R II of the French Monetary and Financial Code, the proceeds of the issue of units and debt securities issued by an FCC must be applied to fund the purchase of eligible assets, to pay interest or redeem the outstanding units or outstanding debt securities issued by the FCC or to pay interest on or repay the outstanding borrowings granted to the FCC. 4 Bulletin N 133 of Banque de France of January 2005 Modernisation of the French securitisation legal framework (page 71) /2006

7 Additional purchases of receivables and further issues of units and debt securities The regulations of an FCC must specify the circumstances and conditions under which the FCC may purchase additional receivables and issue further units and debt securities after the initial issue of units and debt securities. Such regulations must specify the terms pursuant to which the level of security offered to the holders of outstanding units and to the holders of outstanding debt securities will be established and the conditions pursuant to which such level of security will be maintained. The management company must ensure that such conditions will be met. Governing law As a result of their specific legal nature, units issued by FCCs will necessarily remain governed by French law. Pursuant to article R I of the French Monetary and Financial Code, bonds, notes and commercial paper issued by FCCs may be governed by any foreign law. For example, if an FCC issues notes or bonds which are governed by any other law, additional documentation governed by such governing law will be entered into between the FCC (represented by the management company) and the relevant parties (an agency agreement with the fiscal agent to determine the terms and conditions of the notes, a trust deed or a trust indenture). It is expected that the issue by FCCs of debt securities governed by the laws of the State of New York will facilitate their private placement in the U.S. market (but subject to the new comprehensive set of rules promulgated by the U.S. Securities and Exchange Commission (the Regulation AB ) to address the registration, disclosure and reporting requirements for assetbacked securities under the U.S. Securities Act of 1933 which will apply to foreign asset-backed securities issued by a foreign issuer, backed by foreign assets or affected by credit enhancement or other support provided by a foreign entity). Compliance with these new and amended rules is required for a registered offering of asset-backed securities commencing on or after 31 December It should be noted that if the FCC issues subordinated bonds (see subparagraph entitled Subordination Orders of priority below) governed by foreign law, the subordination provisions will necessary be governed by French law. Authorisations Neither the Securitisation Law nor the New Securitisation Decree provide for any specific authorisation procedure for the issue of units and debt securities. Issues of debt securities by FCCs are not subject to the provisions of Ordinance no of 24 June 2004 relating to securities issued by companies (ordonnance n portant réforme du régime des valeurs mobilières émises par les sociétés commerciales). Therefore, New Developments in 7

8 the issue of units and debt securities by FCCs will continue to be based on decisions made by the management company and the custodian. Representation of the holders of debt securities issued by FCCs Unlike for bonds or notes issued by French commercial companies, neither the Securitisation Law (as amended by the Financial Security Law) nor the New Securitisation Decree provides for any specific legal regime for the representation of the holders of debt securities issued by FCCs. French company law provides that holders of notes or bonds are mandatorily grouped for the purpose of the exercise of common rights in a masse (save where the bonds are deemed to be issued outside France). The masse is a body having a separate legal personality which acts in part through a representative and in part through a general meeting of the noteholders. The grouping of noteholders in a masse and their representation by a representative will be optional in the case of FCCs and will need to be addressed in the terms and conditions of the notes. Documentation should be carefully drafted in order to avoid any conflict between the management company and the representative of the noteholders. If the holders of notes are grouped in a masse, they will have voting rights. Of course, if the bonds or notes are governed by a law other than French law, alternative bondholder or noteholder representation may be provided (e.g. through a bond trustee or a note trustee). Liability of holders of units and holders of debt securities Pursuant to article L III of the Monetary and Financial Code, holders of units are only liable for the debts of the FCC (or the compartment, as the case may be) up to the value of its assets and in proportion to their share in the FCC (or, as the case may be, the compartment). The Securitisation Law is silent on the credit exposure of holders of debt securities issued by FCCs because holders of such debt securities have no co-ownership rights in the assets of an FCC. Logically debt securityholders will not be exposed beyond the nominal value of the debt securities they hold. Subordination orders of priority Pursuant to article L of the Monetary and Financial Code (as amended by the Financial Security Law), units and debt securities may confer different rights in respect of principal and interest. This article is the legal basis for the issue of subordinated units and subordinated debt securities. Article R I of the French Monetary and Financial Code provides that the regulations of the FCC must set out the order of priority (ordre d affectation) of the sums received by the FCC between the various classes of units, classes of debt securities and borrowings (unsubordinated or subordinated loans) /2006

9 Article R II of the French Monetary and Financial Code provides that payments on the units are subordinated to payments of any other sums which are due (exigibles) to the holders of debt securities. This provision should not prohibit the repayment of units prior to the maturity date of the debt securities if the maturity date of the units falls before the maturity date of the debt securities, provided always that two units remain outstanding until liquidation of the FCC. In the event of an early amortisation of an FCC, the regulations of the FCC should specify that no payments on the units will be made until the date on which the debt securities and the outstanding borrowings made by the FCC are fully repaid or redeemed. Repurchase of the units and debt securities Pursuant to article L of the Monetary and Financial Code (as amended by the Financial Security Law), units may not be repurchased by the FCC at the request of the holders of such units. Nevertheless, according to certain commentors, units may be repurchased by the FCC at the request of the FCC itself (represented by the management company). The repurchase provisions must be set out in the terms and conditions of units issued by FCCs. There is no similar provision for the debt securities which can be issued by FCCs. Therefore, FCCs can repurchase bonds, notes or commercial paper at the request of the holders of such debt instruments if the terms and conditions of such debt instruments give such right to their respective holders. The repurchase provisions must be set out in the terms and conditions of the bonds, notes and commercial papers issued by FCCs. Specific selling and transfer restrictions Article R of the French Monetary and Financial Code provides that units or debt securities issued by an FCC and bearing the risks which were acquired by the FCC in accordance with its management strategy may only be subscribed for or held by the following categories of investors: qualified investors (investisseurs qualifiés) within the meaning of article L of the Monetary and Financial Code (pursuant to article D of the French Monetary and Financial Code qualified investors include investment firms, credit institutions, compagnies financières, sociétés d'investissement, certain public sector institutions and insurance companies and reinsurance companies, when acting for their own account or for the account of another qualified person. Large corporate investors can come within the category of "qualified investors" but must take certain steps to do so); non-french resident investors (investisseurs non résidents); the assignor of the securitised receivables or a company which is controlled by such assignor within the meaning of article L of the Commercial Code (Code de commerce) or a company which controls New Developments in 9

10 such assignor or a company which is controlled by any of these companies; the swap counterparty which has entered into swap agreements or a company which is controlled by such swap counterparty, in each case within the meaning of article L of the Commercial Code (Code de commerce) or a company which controls such swap counterparty or a company which is controlled by any of these companies. In addition, pursuant to article L of the Monetary and Financial Code (as amended by the Financial Security Law), units and debt securities issued by FCCs may not be sold by way of unsolicited approaches (démarchage). Withholding and deduction According to article 131 quater of the General Tax Code (Code général des impôts) as construed by French tax authorities, payments on, and other revenues with respect to, the notes issued, or deemed to be issued, outside France are entitled to an exemption from interest withholding tax. Article 131 quater of the General Tax Code is subject to the compliance with certain requirements, in particular that the issuer of the notes has legal personality (personne morale) irrespective of their legal status (e.g. company, public stated-owned entity, private entity with specific legal status such as groupement d intérêt économique and associations, etc.). Since FCCs are legal entities with no legal personality, notes and bonds issued by FCCs cannot benefit from the provisions of article 131 quater of the General Tax Code. Nevertheless, payments under notes issued by FCCs and made to a non- French resident will be exempt from withholding or deduction at source if the recipient of the payment provides certification that he is not resident in the Republic of France, in accordance with the provisions of article 125 A III of the General Tax Code (Code général des impôts). Listing and rating of units and debt securities Pursuant to article L of the Monetary and Financial Code, units and debt securities which are sold by way of public offering (appel public à l épargne) must be rated by an approved rating agency. The document referred to in article L of the Monetary and Financial Code (i.e. the pre-sale report) must be attached to the offering circular relating to the offering of the units and debt securities. Unlisted units and unlisted debt securities can be rated or unrated. Article R of the French Monetary and Financial Code provides that the pre-sale report issued by the rating agency(ies) must describe, in accordance with the General Regulation of the French Financial Markets Authority, the management strategy, the operation rules of the FCC and the operating fees incurred by the FCC. Such rating document must be published before the issue of units and debt securities when such units and /2006

11 such debt securities are to be offered or sold by way of public offering in France (appel public à l épargne). Credit derivative transactions The possibility for an FCC to enter into credit derivative transactions is one of the most innovative provisions of the Financial Security Law. The purpose of this new provision is to enable FCCs to use credit derivative technology, to acquire credit risk and to act as sellers of credit protection in the context of synthetic securitisations. Since 1993, FCCs were authorised to enter into interest rate swap transactions or currency swap transactions (including swaptions, caps, floors and collars) but were not specifically authorised to enter into credit derivative transactions. Pursuant to article L of the Monetary and Financial Code (as amended by the Financial Security Law), an FCC may enter into a wide range of forward financial instruments (opérations sur instruments financiers à terme) provided that the terms of such forward financial instruments comply with the management strategy of the FCC (pursuant to article R of the French Monetary and Financial Code). Pursuant to article R of the French Monetary and Financial Code, an FCC may enter into forward financial instruments (contrats constituant des instruments financiers à terme) in order (i) to hedge its exposure or (ii) to implement its management strategy. Article R of the French Monetary and Financial Code provides that one of the management strategies of an FCC is to bear credit risks associated with one or several reference entity(ies) (see paragraph entitled The management strategy of FCCs above). It seems that FCCs will not be permitted to enter into a socalled equity default swap because this will not comply with the management strategy of FCCs. In order to be eligible, the swap counterparties must belong to one of the following categories: a credit institution (établissement de crédit) whose registered office is located in a member state of the Organisation for Economic Cooperation and Development ( OECD ) or an investment company (entreprise d investissement) whose registered office is located in a member state of the European Union or a member state of the European Economic Area ( EEA ) or a state participating in the European Economic Area Agreement ( EEA Agreement ) or the Caisse des Dépôts et Consignations or a foreign institution which is authorised to provide similar services (établissement de droit étranger exercant des missions analogues) and which is listed on a list established by a decision of the Ministry of Economy or a French or a foreign similar legal entity whose obligations under the agreement(s) are guaranteed by such credit institution or investment company; New Developments in 11

12 subject to any applicable legislation or regulatory rules, an insurance company or a reinsurance company regulated by the Insurance Code (Code des assurances) or a licensed insurance or reinsurance company whose registered office is located in a member state of the EEA or a state participating in the EEA Agreement or a member state of the OECD (subject to any applicable law), a French or a foreign similar legal entity with a similar legal status but whose obligations under the swap agreement(s) are guaranteed by such credit institution. Pursuant to article R of the French Monetary and Financial Code the obligations arising from such forward financial instruments are: the delivery (livraison) or the transfer of receivables (or debt securities); the payment of a cash settlement amount; or the transfer of units issued by other FCCs or debt securities issued by similar foreign entities. Pursuant to article R of the French Monetary and Financial Code the maximum net loss incurred by the FCC in connection with all the forward financial instruments (the value of which is to be calculated by taking into account the guarantees listed in article R ) entered into between the FCC and the counterparties cannot be greater than the value of the assets of the FCC. The General Regulation of the French Financial Markets Authority sets out the rules relating to this obligation. The regulations of an FCC must set out the purposes and the conditions for entering into forward financial instruments. If an FCC intends to enter into forward financial instruments in order to bear credit risks, the regulations of such FCC shall specify the nature and the characteristics of the reference entities to which such credit risks are linked. As FCCs may enter into credit derivative transactions, FCCs may now be used as a vehicle for the structuring of synthetic collateralised debt obligation (CDO) securitisation transactions and synthetic collateralised loan obligation (CLO) securitisation transactions. Credit derivative instruments may be governed by the International Swaps and Derivatives Association (ISDA) Master Agreement or French Banking Federation (FBF) Master Agreement. FCCs may become issuers of synthetic securities and sellers of credit protection. FCCs ability to securitise a larger variety of financial assets is expanded Pursuant to article R and article R of the French Monetary and Financial Code the assets of FCCs may consist of the following classes of asset: receivables arising from an existing agreement (acte déjà intervenu) or a future agreement (acte à intervenir) (such receivables may be governed by French law or any foreign law); such receivables can be unmatured /2006

13 receivables, future receivables (the amount and maturity of which are not determined on the relevant transfer date 5 ) or defaulted (immobilisées), doubtful receivables (douteuses) or receivables subject to litigation (litigieuses); debt securities (governed by French law or any foreign law) which represent a monetary claim against the relevant issuer; debt securities purchased in connection with the cash management of the temporary excess cash available to the FCC (see paragraph Cash management and investment rules below). Article R of the French Monetary and Financial Code provides that debt securities may be purchased by an FCC pursuant to the terms of an assignment instrument. Nonetheless, the same article provides that an FCC may also directly subscribe for such debt securities at the time of their issue. In other words, FCCs may acquire debt securities both on the primary and the secondary markets. In addition, certain liquidity or debt instruments may be purchased by FCCs in connection with the investment of their temporarily available cash (see paragraph entitled Cash management and temporary investments below). Assignment and transfer of receivables and security interests Method of assignment The Securitisation Law provides a very efficient way of transferring receivables to an FCC. Title to the receivables is transferred by the execution and dating of a deed of transfer (acte de cession). Pursuant to article L of the Monetary Code (as amended by the Financial Security Law), the assignment of receivables shall take effect between the parties (i.e. the assignor and the FCC in its capacity as transferee) and shall be enforceable vis-à-vis third parties as of the date specified in the deed of transfer, irrespective of the origination date, the maturity date or the due date of such receivables with no further formalities regardless of the law governing the transferred receivables and the law of the domicile of the assigned debtors. The delivery of the deed of transfer shall entail the automatic transfer of any security interest, guarantees and ancillary rights attached to each receivable, including mortgages, and the enforceability of such transfer vis-à-vis third parties, with no further formalities. Pursuant to article R of the French Monetary and Financial Code the acte de cession (deed of transfer) must contain specific terms and 5 It should be noted that, pursuant to article L of the French Monetary and Financial Code, if seller becomes the subject of insolvency proceedings after the date of the assignment of the receivables, such assignment remains valid after the starting of the insolvency proceedings unless the assigned receivables arise from ongoing performance contracts (contrats à execution successive) and the amount of the assigned receivables is not a determined amount (montant determiné). New Developments in 13

14 information in order to ensure that the receivables will be transferred and assigned. 6 Governing law of the receivables The Securitisation Law allows FCCs to be used to securitise receivables which are governed by French law or any other law. The assignment does not affect customer relationships because no notification is required. Pursuant to the Article 12 of the Rome Convention 80/934/EEC of 19 June 1980 (the 1980 Rome Convention ) the law of the transferred receivables governs the conditions of enforceability vis-à-vis the assigned debtors. However, the 1980 Rome Convention does not apply to enforceability vis-à-vis third parties. The Securitisation Law allows for the transfer of receivables which are governed by foreign law and the French courts will recognise that the transfer of foreign receivables to FCCs is valid, binding and enforceable. Nevertheless, it may still remain necessary to check the conflict of law rule of the jurisdiction of the law governing the foreign receivables in order to determine whether such transfer can also be recognised as being legal, valid and binding by the courts of such jurisdiction. In its Opinion of 14 September 2004 the ECB noted that, at the international level, the General Assembly of the United Nations adopted on 12 December 2001 the Convention on assignment of receivables in international trade which may contribute to harmonising the conflict of laws rules. In its Opinion CON/2204/3, the ECB hopes that the solutions adopted and/or examined at international level will lead to an increased harmonisation of the rules applying in this area at EU level and reduce legal uncertainty and inefficiency in the context of cross-border commercial and financial transactions. Enforcement of security securing or attached to the securitised receivables Pursuant to article L of the Monetary Code (as amended by the Financial Security Law), the FCC shall be entitled to hold or to own the secured assets further to the enforcement or the creation of these security interests. This article expressly confirms the automatic transfer of any security interest attached to the securitised assets and the capacity of FCCs to hold or own 6 1 The heading deed of transfer of receivables ; 2 The statement that the assignment is governed by articles L to L of the Monetary and Financial Code relating to FCCs; 3 The name of the transferee (i.e. the name of the FCC); 4 The description and breakdown of the receivables assigned or the elements based on which the description and breakdown can be made, in particular the identification of the obligor(s), the place of payment, the amount of the receivables and, if appropriate, their maturity date. When the transfer of the assigned receivables is effected by way of a computerised process which enables identification of such receivables, the acte de cession can be limited to stating, in addition to the information listed in 1, 2 and 3 above, the mean by which the receivables are identified and broken down, their number and their total amount /2006

15 any secured assets, even though such assets may not be eligible for direct purchase by the FCC (such as equity securities or real estate property). Credit and liquidity enhancements and guarantees Credit and liquidity enhancements Article R of the French Monetary and Financial Code sets out the various credit enhancement techniques available to FCCs and broadens the type of guarantees/collateral which may be transferred to or granted in favour of FCCs. In order to cover the risks which are borne by FCCs in relation to their management strategy, the following credit enhancement techniques can be used: 1. the issue of units and debt securities bearing such risks provided that such units and debt securities are subscribed for by certain limited categories of investors listed in Issues of Debt Securities by FCCs Specific selling and transfer restrictions ; 2. the assignment and transfer to the FCC of an amount of receivables (or debt securities) greater than the principal amount of the units and debt securities issued by the FCC (i.e. overcollateralisation); 3. the assignment and transfer of the securities, guarantees and related ancillary rights which secure the securitised receivables; 4. the grant of guarantees by the entities listed in article R of the French Monetary and Financial Code (see sub-paragraph entitled Guarantees below); 5. the grant of one or several subordinated loans; 6. the entry into forward financial agreements. The regulations of the FCC must specify the rules governing such credit enhancements. The New Securitisation Decree remains silent on the governing law of the guarantees. Therefore, such guarantees may be governed by French law or by any relevant foreign law. Guarantees Pursuant to article R of the French Monetary and Financial Code, the guarantees listed in article R of the French Monetary and Financial Code must be granted by the following eligible guarantee providers: a credit institution (établissement de crédit) whose registered office is located in a member state of the OECD or an investment company (entreprise d investissement) whose registered office is located in a member state of the European Union or a member state of the EEA or a New Developments in 15

16 state participating in the EEA Agreement or the Caisse des Dépôts et Consignations or a French or a foreign similar legal entity whose obligations under the agreement(s) are guaranteed by such credit institution or investment company; an insurance company (société d assurance) or a reinsurance company regulated by the Insurance Code (Code des assurances) or a licensed insurance or reinsurance company whose registered office is located in a member state of the EEA or a state participating in the EEA Agreement or in a member state of the OECD; the assignor of the securitised receivables (or any company which is controlled by such assignor, in each case within the meaning of article L of the Commercial Code (Code de commerce) or any company which controls such assignor); any swap counterparty which has entered into derivative instruments with the FCC (or any company which is controlled by such swap counterparty, in each case within the meaning of article L of the Commercial Code (Code de commerce) or any company which controls such swap counterparty). The guarantees and the other credit enhancements and financial supports can be governed by French law or any relevant foreign law of a member state of the European Economic Area or a state participating member in the European Economic Area Agreement or in member state of the Organisation for Economic Cooperation and Development. Other credit enhancements The list of credit and liquidity enhancements and guarantees provided for by article R of the French Monetary and Financial Code is not exhaustive. Therefore, other types of credit enhancement and liquidity mechanisms can be granted in favour of FCCs. In their capacity as assignors, banks which are subject to Regulation no dated 21 December 1993 (as amended) of the Banking and Financial Regulatory Committee (Comité de la Règlementation Bancaire et Financière) may grant a specific cash deposit guarantee (dépôt en espèces à titre de garantie) in favour of FCCs. Other credit enhancements such as a spread account (which is built up from the spread between the average weighted interest paid on the securitised assets and the average weighted interest paid on the asset backed securities) or liquidity support under the terms of subordinated credit facility agreements (see paragraph entitled Borrowings Subordinated loans below) can also be granted by eligible credit enhancement providers /2006

17 Operation of the dedicated collection account (compte d affectation spéciale) Much of the structuring of a securitisation transaction is intended to minimise the effects on the transaction of the possible insolvency of the originator of the securitised receivables. Article L of the French Monetary and Financial Code was amended by the Financial Security Law to create a specially dedicated collection account (compte d affectation spéciale) in order to mitigate the commingling risk if the originator becomes subject to insolvency proceedings. Pursuant to article L of the French Monetary and Financial Code, the management company and the entity responsible for the servicing of the receivables (i.e. the servicer) may agree that the collected sums will be credited to a specially dedicated account of the FCC or the compartment, as the case may be, from which the creditors of the entity responsible for the servicing of the receivables will not be entitled to claim payment over such collected sums, including if such entity becomes the subject of insolvency proceedings. The operation rules of this specially dedicated account will be specified in a decree. This provision is the first in French law which creates a legal protection for the transferee of the receivables and, subsequently, of the investors in the asset-backed securities, if the servicer becomes subject to insolvency proceedings. Article R of the French Monetary and Financial Code sets forth the operation rules of the specially dedicated account: such account must be a bank account (compte bancaire) opened in the books of an eligible account provider (including any existing account opened in the name of any entity responsible for the servicing of the transferred receivables). Such account will enter into force and will be recognised, without any additional formalities, as being a segregated and specially dedicated account on the date on which a bank account agreement is entered into between (i) the management company, (ii) the custodian, (iii) the entity which is, directly or indirectly, responsible for the servicing of the transferred receivables and (iv) the account provider; the FCC is the sole beneficiary of the amounts credited to the specially dedicated account. The management company is authorised to manage and dispose of such sums subject to and in accordance with the terms of the bank account agreement referred to in the preceding paragraph. When sums other than the sums generated by the transferred receivables are credited to the specially dedicated account, the entity responsible for the servicing of the receivables must prove that such other sums are not due to the FCC. Such other sums must be debited as soon as possible from the bank account in accordance with the terms of the bank account agreement; New Developments in 17

18 the account provider (i) is responsible for informing any third parties (i.e. claimant creditors) that the account is specially dedicated for the benefit of the FCC in accordance with article L of the Monetary and Financial Code and that the credited sums are beyond the reach (indisponibles) of the creditors, (ii) cannot merge such specially dedicated account with any other account and (iii) must comply with the instructions provided by the management company in relation to any debit transactions of such specially dedicated account unless the account bank agreement authorises the entity responsible for the servicing of the transferred receivables to make such debit transactions in accordance with its terms. The eligible account provider must be one of the following entities: a credit institution (établissement de crédit) whose registered office is located in a member state of the OECD or the Caisse des Dépôts et Consignations or any foreign institution which is authorised to provide similar services (établissement de droit étranger exercant des missions analogues) and which is listed on a list established by a decision of the Ministry of Economy; the assignor of the securitised receivables or a company which is controlled by such assignor within the meaning of article L of the Commercial Code (Code de commerce) or a company which controls such assignor or a company which is controlled by any of these companies; the swap counterparty which has entered into swap agreements or a company which is controlled by such swap counterparty, in each case within the meaning of article L of the Commercial Code (Code de commerce) or a company which controls such swap counterparty or a company which is controlled by any of these companies. In practice, these innovative provisions should foster securitisations of bank receivables or trade receivables originated by banks or corporate entities with a low rating or without any rating but with a poor credit quality because FCCs and the holders of the units and the holders of debt securities issued by FCCs will be protected if the originator becomes subject to insolvency proceedings. Borrowings Article R of the French Monetary and Financial Code sets out the conditions pursuant to which FCCs may borrow money. FCCs may borrow for liquidity purposes and/or for credit enhancement purposes, in which case, by way of subordinated loans. Liquidity purposes Pursuant to article R I of the French Monetary and Financial Code, FCCs may enter into credit facility agreements in order to: /2006

19 implement their management strategy; redeem or pay interest on outstanding units and outstanding debt securities; repay or pay interest on outstanding borrowings. The eligible loan provider must be a credit institution (établissement de crédit) whose registered office is located in a member state of the OECD or the Caisse des Dépôts et Consignations or a foreign institution which is authorised to provide similar services (établissement de droit étranger exercant des missions analogues) and which is listed on a list established by a decision of the Ministry of Economy. Subordinated loans Pursuant to article R II of the French Monetary and Financial Code, FCCs may enter into subordinated credit facility agreements in order to hedge the risks linked to their management strategy. It should be noted that FCCs cannot lend the proceeds of the issues of notes or debt securities due to French banking monopoly rules. The eligible subordinated loan providers must be one of the following entities: a credit institution (établissement de crédit) whose registered office is located in a member state of the OECD or the Caisse des Dépôts et Consignations or a foreign institution which is authorised to provide similar services (établissement de droit étranger exercant des missions analogues) and which is listed on a list established by a decision of the Ministry of Economy; the assignor of the securitised receivables (or any company which is controlled by such assignor, in each case within the meaning of article L of the Commercial Code (Code de commerce) or any company which controls such assignor); the swap counterparty which has entered into swap agreements (or any company which is controlled by such swap counterparty, in each case within the meaning of article L of the Commercial Code (Code de commerce) or any company which controls such swap counterparty). Article R II of the French Monetary and Financial Code remains silent on the level of subordination of the subordinated credit facility that may be granted to FCCs. Therefore, this flexibility allows the subordination of such subordinated credit facility to all or certain classes of debt securities or all or certain classes of units issued by FCCs depending upon the allocation of the borrowed funds. Pursuant to article R of the French Monetary and Financial Code, the regulations of an FCC must set out the purposes and the limits of the borrowings to be made available to the FCC. Such regulations shall also specify the terms pursuant to which the level of security offered to the holders of outstanding units and to the holders of outstanding debt securities New Developments in 19

20 will be established and the conditions pursuant to which such level of security will be maintained. The management company shall ensure that such conditions will be met. Repurchase and temporary purchase transactions In connection with entering into credit derivative transactions, article R of the French Monetary and Financial Code authorises FCCs to enter into debt securities repurchase agreements and temporary purchase transactions (opérations de pension ou toute autre opération d acquisition et de cession temporaire de titres) to a level of up to one hundred per cent. (100%) of their assets. The regulations of an FCC must set out the purposes and conditions of such repurchase transactions. Such repurchase transactions will also be governed by the relevant provisions of article L of the Monetary and Financial Code relating to pensions livrées (which authorise FCCs to enter into repurchase agreements) and documented under the form of the AFTB Master Agreement (if the repurchase agreement is governed by French law) or under the form of the 2000 PSA/ISMA Global Master Repurchase Agreement (if the repurchase agreement is governed by English law). The Banking European of European Union also published a master repurchase agreement (convention-cadre relative aux opérations sur instruments financiers annexe produit relative aux opérations de pension livrée) in The eligible repurchase counterparty must be a credit institution (établissement de crédit) whose registered office is located in a member state of the OECD or an investment company (entreprise d investissement) whose registered office is located in a member state of the EEA or a state participating in the EEA Agreement, a French or a foreign legal entity whose obligations under the agreement(s) are guaranteed by such credit institution or investment company. The underlying assets must be debt securities which represent a monetary claim against the relevant issuer. Under these repurchase transactions, the commitments of an FCC cannot be higher than its temporarily available cash on the relevant payment date. Cash management and temporary investments Pursuant to article R of the French Monetary and Financial Code, temporary surplus cash (as referred to in article 2) may be invested in certain financial instruments. The permitted investments are the following: /2006

21 1. cash deposits (dépots en espèces) with a credit institution and which can be repaid or withdrawn at any time on demand by the FCC with a maximum delay of twenty-four hours (subject to any investment in cash deposits which are not denominated in Euros); 2. French Treasury bonds (bons du Trésor); 3. debt securities which represent a monetary claim against the relevant issuer if such debt securities are negotiated on a regulated market located in a member state of the EEA but provided that such debt securities do not give a right of access directly or indirectly to the share capital of a company; 4. negotiable debt securities (titres de créances négociables); 5. shares (actions) or units (parts) issued by UCITS (organismes de placement collectif en valeurs mobilières) whose assets are principally invested in debt securities listed in 2, 3 and 4 above; 6. units issued by other FCCs or similar foreign entities (with the exception of units issued by the FCC itself). Such cash is held by the FCC to meet the needs of the completion of its management strategy. It may also correspond to the investment of sums which are pending allocation. This cash is usually invested very prudently, or defensively, in highly rated instruments. The regulations of the FCC must spell out the proposed investment guidelines. Usually, cash management and investment rules are documented by a cash management agreement entered into between the management company, the custodian and a cash manager. Such cash manager may be a portfolio manager or an investment adviser who provides cash management services. Transfer of assets and liquidation of FCCs No transfer and no pledge over the assets Pursuant to article L of the Monetary and Financial Code (as amended by the Financial Security Law) an FCC or the compartments of an FCC may not assign the receivables it acquired for so long as the receivables have not matured or have not been accelerated, save in specific circumstances and cases set out in a decree. An FCC (or a compartment of an FCC) may not pledge or charge the receivables it holds. It should be noted that this provision applies to receivables and debt securities acquired by an FCC or a compartment of such FCC. Partial or total transfer of the assets Article R of the French Monetary and Financial Code sets out the circumstances in which FCCs may transfer all or part of their assets. The combination of article R with article R and article R New Developments in 21

22 108 of the French Monetary and Financial Code allows FCCs to transfer (under the terms of a repurchase agreement) a portion of their assets in order to meet their obligations under a credit default swap if a credit event occurs in respect of the reference entities and the reference obligations. Partial or final liquidation events Unmatured receivables (créances non échues) or non-defaulted receivables (créances non déchues) purchased by an FCC may not be transferred back by it unless: 1. the FCC is liquidated and such liquidation is in the interests of the holders of outstanding units and outstanding debt securities; 2. the principal amount outstanding in respect of the unmatured receivables held by the FCC is less than a certain percentage of the maximum principal amount outstanding of unmatured receivables held by the FCC since its creation. Such percentage must be specified in the regulations of the FCC and cannot exceed 10%; 3. the units and the debt securities issued by the FCC are held by a single holder and at that holder s request or the units and the debt securities are held by the originator(s) and at the originator(s) request; 4. the FCC is obliged to meet its obligations arising from a forward financial agreement; 5. a favourable or an unfavourable trend in respect of the risk which are borne by the FCC in the context of its management strategy is detected or anticipated on the basis of certain criteria set out in the regulations of the FCC; 6. given the then prevailing market trends, the modification of the composition of the assets of the FCC is appropriate provided that such transactions are limited to an annual amount of assignment of receivables in accordance with the provisions of the regulations of the FCC. Such annual amount cannot exceed 30% of the assets of the FCC. The regulations of the FCC must set out the conditions for the assignment of unmatured receivables and non-defaulted receivables. Such regulations shall also specify the terms pursuant to which the level of security offered to the holders of units and to the holders of debt securities will be established and the conditions pursuant to which such level of security will be maintained. The management company shall ensure that such conditions will be met. These provisions do not apply to the investments made by the FCC nor to the transactions made under repurchase agreements. Pursuant to article L of the French Monetary and Financial Code, the management company shall liquidate an FCC within six months after the date of the extinguishment of the last receivable /2006

23 Custody and safekeeping of the underlying documents Pursuant to article L II of the Monetary and Financial Law (as amended by the Financial Security Law), the custodian of the assets of the FCC shall act as custodian for the cash and the receivables held by the FCC and shall be responsible for controlling the decisions of the management company in accordance with the provisions of the General Regulation of the French Financial Markets Authority. The custody of the receivables may be undertaken by the originator or the entity responsible for the servicing of the receivables in accordance with the provisions of the decree. Pursuant to article R of the French Monetary and Financial Code, the custodian of the assets of the FCC is responsible for such custody (conservation). The originator or the entity responsible for the servicing of the receivables may act as custodian of the receivables provided that the following cumulative conditions are met: 1. the custodian of the assets of the FCC remains responsible for the safekeeping of the deeds of transfer pursuant to which the receivables are transferred to the FCC; 2. the originator or the entity responsible for the servicing of the receivables (i) is responsible for the safekeeping of the agreements and other documents relating to the receivables and the security interest and related ancillary rights, (ii) establishes appropriate documented custody procedures and an independent internal ongoing control of such procedures; 3. in accordance with the provisions of an agreement to be entered into between the originator or the entity responsible for the servicing of the receivables, the custodian and the management company: the custodian of the assets of the FCC shall ensure, on the basis of a statement (déclaration) of the originator, or the entity responsible for the servicing of the receivables, that appropriate documented custody procedures have been set up. This statement (déclaration) shall enable the custodian to check if the originator or the entity responsible for the servicing of the receivables has established appropriate documented custody procedures allowing the safekeeping of the receivables, their security interest and their related ancillary rights and that the receivables are collected for the sole benefit of the FCC; at the request of the management company of the FCC or at the request of the custodian of the assets of the FCC, the originator, or the entity responsible for the servicing of the receivables, shall forthwith provide to the custodian, or any other entity designated by the custodian and the management company, the original agreements and documents relating to the receivables. New Developments in 23

24 The regulations of the FCC must set out the terms of the custody of the assets /2006

25 Example of a potential new development in the French securitisation market: how to structure synthetic CDOs/CLOs under French securitisation law? The combination of the Securitisation Law and the New Securitisation Decree should allow synthetic collateralised debt obligation (CDO) securitisations and synthetic collateralised loan obligation (CLO) securitisations to be implemented under French law. Hence, FCCs will become the first regulated issuers of so-called credit-linked notes and synthetic securities. The following description is provided for illustrative purposes only. The general process will be the following: 1. the management company and the custodian will enter into the regulations of the FCC in order to determine, among other things, the management strategy of the FCC, the operational rules of the FCC and the liquidation procedure of the FCC; 2. the FCC will issue one or several classes of debt securities (i.e. senior/mezzanine/subordinated debt securities) and, at least, two units; 3. the net proceeds from the issue of the debt securities and the units will be applied by the FCC towards acquiring a portfolio of sovereign debt securities and/or AAA/Aaa debt securities; 4. the FCC may enter into a custody agreement pursuant to which the sovereign debt securities and/or AAA/Aaa debt securities will be held in custody; 5. the FCC will enter into credit default swaps with eligible credit default counterparties (including super-senior credit default swaps or mezzanine credit default swaps). The reference obligations may be senior loans, mezzanine loans, consumer loans, residential mortgage loans, commercial mortgage loans, debt securities, synthetic securities or any other debt instruments. The reference entities may be banks, corporates or any other issuers of debt instruments; 6. if necessary, the FCC will enter into interest rate swap(s) and/or currency swap(s); 7. if the management company wants to delegate the management of the portfolio of the sovereign debt securities and/or AAA/Aaa debt securities purchased by the FCC (specifically in the case of a nonstatic synthetic CDO), the FCC will enter into a portfolio management agreement with an eligible portfolio manager or New Developments in 25

26 collateral manager (i.e. a management company of UCITS, a foreign passported management company or an eligible credit institution); 8. the FCC may enter into a repurchase agreement with an eligible repurchase counterparty; 9. the FCC will enter into a bank account agreement with an eligible account bank; 10. if the debt securities issued by the FCC are governed by French law, the terms and conditions of such debt securities will be set out in the offering circular or, in the case of issues of unlisted debt securities, in the regulations of the FCC; 11. if the debt securities issued by the FCC are governed by English law, the FCC will enter into (i) a fiscal agency agreement which will contain the terms and conditions of the notes or (ii) a trust deed in order to create the rights and obligations of the noteholders. The debt securities may be denominated in Euros or in any other currency(ies). The AAA/Aaa debt securities to be purchased by the FCC with the net proceeds of the issue of the synthetic securities by the FCC can be French Obligations Assimilables du Trésor (OAT) or similar liquid sovereign debt securities. Pursuant to the credit default swap agreement, the credit default swap counterparty (as credit protection buyer ) will purchase credit protection from the FCC (as credit protection seller ) for losses arising as a result of credit events with respect to certain reference entities and their reference obligations (to the extent such losses exceed the agreed threshold amount). The credit default swap agreement may be governed by the International Swaps and Derivatives Agreements (ISDA) Master Agreement or the French Banking Federation (FBF) Master Agreement and will be documented by the relevant schedule and confirmations. If credit events occur in respect of the reference entities and their reference obligations, the management company will, under the terms of a repurchase agreement, sell a sufficient nominal amount of the debt securities constituting its assets in order to pay the cash settlement amount to the credit protection buyer /2006

27 Conclusion Benefits of the New Securitisation Decree The New Securitisation Decree significantly revises, updates and clarifies the legal regime of French securitisation. The benefits provided by the New Securitisation Decree are manifold. It will expand the ability to use FCCs to securitise a large variety of financial assets and the potential ability of FCCs to use credit derivative technology. Off-balance sheet and capital adequacy treatment General - The Securitisation Law and the New Securitisation Decree remain silent on the accounting and capital treatment of securitisation transactions. French accounting treatment is provided by the avis of the French National Accounting Committee (Comité National de la Comptabilité) of 24 June Such securitisation transactions (synthetic or cash flow securitisations) will be subject to the relevant accounting rules and capital adequacy treatment provided by: existing regulations of the French Banking and Finance Regulatory Committee (Comité de la Réglementation Bancaire et Financière); 8 regulations and avis of the French National Accounting Committee (Conseil National de la Comptablilité); 9 standards and interpretations of the International Accounting Standards Board; 10 statements and interpretations of the Financial Accounting Standards Board 11. Joint Recommendations issued by the French Banking Commission and the French Financial Markets Authority - In November 2002 the French Banking Commission (Commission Bancaire) and the French Financial Markets Authority (Autorité des Marchés Financiers) published joint recommendations Avis of 24 June 2003 relating to accounting principles applicable to fonds communs de créances. Regulation no (as amended) of 21 December 1993 relating to accounting treatment of securitisation transactions (relatif à la comptabilisation des opérations de titrisation). Avis no D of 13 October 2004 relating to specific provisions regarding consolidation of fonds communs de créances and foreign entities (relatif aux dispositions particulières concernant la consolidation des fonds communs de créances et des organismes étrangers); Regulation no of 29 April 1999 relating to consolidated accounts of commercial companies and public companies (relatif aux comptes consolidés des sociétés commerciales et entreprises publiques), Regulation no of 24 November 1999 relating to consolidation rules applicable to companies which are subject to the Banking and Financial Regulatory Committee (relatif aux règles de consolidation des entreprises relevant du Comité de la réglementation bancaire et financière); Regulation no of 7 December 2000 relating to the consolidation rules applicable to companies, institutions or entities which are subject to the French Insurance Code, the French Social Security Code or the French Rural Code (relatif aux règles de consolidation et de combinaison des entreprises régies par le Code des assurances et des institutions de prévoyance régies par le Code de la sécurité sociale ou par le Code rural). International Accounting Standards 39 (IAS 39 Financial Instruments: Recognition and Measurement ) and the interpretation of IAS 39 in relation to special purpose vehicles (SIC 12). Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities (FAS 140) issued by the Financial Accounting Standards Board (FASB) and FASB Interpretation No. 46 (FIN 46, Consolidation of Variable Interest Entities). New Developments in 27

28 relating to off-balance sheet transactions in order to highlight the constraints to be meet in order to achieve off-balance sheet transactions 12. New flexibility to spur growth It is expected that the flexible legal regime provided by the New Securitisation Decree should make FCCs as a more competitive instrument in international securitisation programmes (either as master purchasers or as refinancing vehicles) and should have a positive impact on the refinancing of leveraged buyout (LBO) transactions and public-to-private partnerships (PPP) and on the potential establishments of asset-backed commercial paper (ABCP) programmes and Euro medium term note (EMTN) programmes using FCC technology. AMF General Regulation Some provisions of the New Securitisation Decree refer to the more detailed implementation provisions contained in the Règlement Général de l Autorité des Marchés Financiers (the General Regulation of the French Financial Markets Authority (the AMF General Regulation )) with respect to, among other things, credit derivatives and exposure of FCCs in their capacity as credit protection sellers, the rating document relating to units and/or debt securities issued by FCCs and other ancillary provisions. The AMF General Regulation will be amended and supplemented from time to time with new provisions applicable to FCCs, management companies and custodians. Prospectus Directive It should be noted that the offering of units and debt securities issued by FCCs will have to comply with the new requirements contained in the Prospectus Directive 13. In its Opinion of 14 September 2004, the European Central Bank noted that the draft securitisation decree needs to be compatible with the specific disclosure for the different types of instruments issued by FCCs and also with the new general disclosure requirements applying to the issuance of assetbacked securities contained in the implementing rules of the Prospectus Directive. Opinion of the European Central Bank On 14 September 2004 the ECB issued an opinion on the draft securitisation decree at the request of the French Ministry of Economic Affairs, Finance and Industry (ECB Opinion CON/2004/30). The ECB s opinion referred to a recent opinion in which the ECB sees merit in a strategy of increased harmonisation in the area of securitisation at EU level. Bertrand Andriani / Emmanuel Lebaube Linklaters, Paris Recommandations communes: COB Commission bancaire : montages désonsolidants et sorties d actifs. Bulletin Mensuel COB Novembre No Directive 2003/71/CE of 4 November /2006

29 We have participated with the French Treasury, the Banque de France and the French Financial Markets Authority in the drafting of the New Securitisation Decree. This memorandum offers general information and should not be taken or used as legal advice on an individual transaction and should by no means be regarded as a legal opinion in relation to the legal or tax issues that it addresses. We encourage you to contact us if you have any questions about any aspect of the New Securitisation Decree and for further information about the Securitisation Law and the New Securitisation Decree or any other issue discussed in this memorandum. 25, rue de Marignan Paris Tel: (33) Fax: (33) Contacts Please contact any of the following at Linklaters if you would like to discuss anything in this memorandum: Bertrand Andriani Tel: bertrand.andriani@linklaters.com Olivier Jauffret Tel: olivier.jauffret@linklaters.com Jérôme Pedrizzetti Tel: jerome.pedrizzetti@linklaters.com Gilles Endréo Tel: gilles.endreo@linklaters.com Cenzi Gargaro Tel: cenzi.gargaro@linklaters.com Emmanuel Lebaube Tel: emmanuel.lebaube@linklaters.com New Developments in 29

30 Significant Securitisation and CDOs/CLOs Transactions on which the Linklaters Paris Securitisation and Structured Finance Group recently advised Securitisation Transactions November 2005 EUR 1,500,000,000 consumer loans securitisation in connection with portfolio of fixed rate consumer loans originated by Cetelem, a direct wholly-owned subsidiary of BNP Paribas. The consumer loans were transferred to a French securitisation vehicle, a fonds commun de créances à compartiments (RETAIL ABS FINANCE) and allocated to the compartment NORIA The FCC issued EUR 1,410,000,000 Class A Floating Rate Backed Notes due 31 December 2020, EUR 45,000,000 Class B Floating Rate Backed Notes due 31 December 2020 and EUR 45,000,000 Class C Floating Rate Backed Notes due 31 December The notes are listed on Eurolist of Euronext Paris. RETAIL BAS FINANCE 2005 is the largest ever consumer loans securitisation in France. The transaction was arranged and lead managed by BNP Paribas. October 2005 EUR 397,400,000 commercial mortgage loans securitisation in connection with a secured commercial mortgage facility originated by HSBC and Société Générale to refinance commercial mortgage loans to French properties owned by French companies of the English real estate group Proudreed. The loan receivables were securitised through a French securitisation vehicle (FCC Proudreed Properties 2005), a fonds commun de créances. The transaction was arranged by HSBC and Société Générale. June 2005 March 2005 EUR 450,000,000 auto loans securitisation in connection with fixed rate retail automobile loan receivables originated by Société de Crédit des Sociétés d Assurance à Caractère Mutuel. The auto loans were transferred to a French securitisation vehicle, a fonds commun de créances à compartiments (TITRISOCRAM/Compartiment TS4). The FCC issued EUR 409,500,000 Class A Asset Backed Floating Rate Notes due 20 April 2012 and EUR 40,500,000 Class B Asset Backed Floating Rate Notes due 20 April The transaction was arranged by Calyon and lead managed by Calyon and Société Générale. EUR 398,000,000 securitisation of rental receivables originated by Prologis from distribution facilities located in the UK, France, Germany, Italy, Spain and Holland. The 389m raised was then advanced to ProLogis European Finance VII S.a.r.l., allowing ProLogis European Finance VII S.a.r.l. to repay existing debts incurred by various ProLogis Group companies in acquiring and developing the relevant properties. The transaction was arranged by ABN Amro and Bank of America. January 2005 RHODIA pan-european trade receivables securitisation (EUR 230,000,000 and GBP 30,000,000) involving more than thirty of its subsidiaries located in France, England, Germany, Spain, Italy and Switzerland. The transaction was arranged by Calyon /2006

31 December 2004 AMEC Spie pan-european trade receivables securitisation (EUR 150,000,000) involving ten subsidiaries located in France, Belgium, The Netherlands and Portugal. The transaction was arranged by Calyon. July 2004 May 2004 April 2004 March 2004 December 2003 December 2003 FCC EUROTRUCK LEASE, a EUR 600,000,000 whole business-type securitisation of truck lease receivables originated by the Fraikin Group through senior facilities unconditionally and irrevocably guaranteed by MBIA and a subordinated facility granted by Calyon and CIC. This is the First whole business-type securitisation in France. The transaction was arranged by Calyon and CIC. The transaction has been granted an ISR Award as Corporate Securitisation Deal of the Year and a Club des Trente Award. EUR 405,000,000 securitisation of trade receivables originated by a major French company through an ABCP conduit vehicle and via credit default swaps. EUR 275,000,000 pan-european securitisation of trade receivables originated by entities of the Cegelec Group. This transaction achieved a leverage recapitalisation of the LBO of the Cegelec Group, one of the leading providers of contracting services in Europe and the leading service provider of electrical installation in France. It is one of the very few examples of partial exit recapitalisation ( recap ) in France structured via a securitisation of the target receivables. The transaction was arranged by Calyon. EUR 355,420,000 commercial mortgage securitisation in connection with a secured commercial mortgage facility originated by JPMorgan Chase Bank to refinance commercial mortgage loans to eight regional property owning SPVs owned by the GFR Group and MSREF Group. Payments of scheduled interest and ultimate principal are unconditionally and irrevocably guaranteed by Ambac Assurance UK Limited. The transaction is supported by mortgages over nearly 400 properties located throughout France and is supported by lease receivables arising principally out of leases entered into with France Telecom, the original owner of the properties, following a sale and lease back completed between the end of 2002 and the middle of The loan was securitised through a French securitisation vehicle (European Capital Property I), a fonds commun de créances. The transaction was arranged by JPMorgan. EUR 790,010,000 Residential Mortgage Securitisation in connection with variable rate residential mortgage loans originated by Union de Crédit pour le Bâtiment UCB, a direct wholly-owned subsidiary of BNP Paribas. The housing loans are secured by mortgaged properties located in France and were transferred to a French securitisation vehicle, a fonds commun de créances (DOMOS 2003). The FCC issued EUR 755,000,000 Class A Floating Rate Residential Mortgage Backed Units due 30 June 2036 and EUR 35,000,000 Class B Floating Rate Residential Mortgage Backed Units due 30 June The transaction was arranged by BNP Paribas. EUR 820,000,000 commercial mortgage securitisation in connection with a secured loan originated by Morgan Stanley to refinance Unibail s 160,000 square meter Coeur Défense property complex (Continental Europe s largest single office building). The loan was securitised through a French securitisation vehicle (Coeur Défense FCC), a fonds commun de créances. The transaction was arranged and lead New Developments in 31

32 managed by Morgan Stanley. December 2003 July 2003 July 2003 March 2003 February 2003 EUR 800 million securitisation of receivables originated by Orange France S.A co-arranged by Citigroup and The Royal Bank of Scotland. The receivables are transferred to a French fonds commun de créances, the units of which are refinanced through a Delaware-based ABCP conduit vehicle. FCC COPY First 2003, a EUR 398,000,000 whole business-type securitisation of lease receivables securitisation originated by Xerox through a limited recourse senior facility granted by Merrill Lynch and which was unconditionally and irrevocably guaranteed by MBIA. The loan and the related security were securitised through a French securitisation vehicle, a fonds commun de créances à compartiments. The transaction was arranged and lead managed by Merrill Lynch International. FRANs 2003, a EUR 620,407,000 aircraft securitisation. The deal consisted of a securitisation of 16 aircrafts arranged by lead managers with the benefit of an unconditional and irrevocable guarantee granted by MBIA in respect of the EUR 292,379,000 senior notes. There were three classes of notes offered to the market through a special purpose vehicle (FRANS 2003), the proceeds of which will fund limited recourse loans to 16 Irish SPV s. Each SPV will buy one aircraft from Air France and resell it to Air France under a conditional sale agreement (vente avec clause de réserve de proprieté), allowing the SPV to retain title to the aircraft while Air France pays for it in quarterly instalments over 10 years with ownership transferring when the last instalment is paid, which is also when the securitisation matures. The transaction was arranged by Crédit Lyonnais and JPMorgan. Securitisation of rental receivables originated by Prologis from distribution facilities located in the U.K., France, The Netherlands and Spain ultimately owned by ProLogis European Property Fund (established in Luxembourg). Funding achieved via a secured loan between the issuer (Pan-European Industrial Properties Series III S.A.), and ProLogis European Finance III S.a.r.l., a wholly-owned subsidiary of ProLogis European Property Fund. The transaction was arranged by Société Générale. EUR 340,000,000 Commercial mortgage securitisation in connection with a loan originated by Morgan Stanley to refinance Thales s real estate properties. The loan was securitised through a French securitisation vehicle (ELOC 12 FCC), a fonds commun de créances. The transaction was arranged by Morgan Stanley. Lloyds TSB acted as liquidity provider for the FCC. CDO/CLO Transactions (Synthetic and/or cash flow transactions) July 2004 Advising IXIS Asset Management as portfolio manager on the Saphir CDO Programme, which used an Irish SPV (Saphir CDO (Ireland (Limited)) that acquired credit exposure to reference obligors by selling credit protection to JPMorgan pursuant to swap agreements. The synthetic exposure was in respect of a portfolio of primarily investment grade obligors using credit derivatives as the method of underlying risk transfer. The swaps and other assets of the Issuer are managed by the portfolio manager /2006

33 July 2004 April 2004 December 2003 November 2003 September 2003 Advising AXA Investment Managers, as portfolio manager on the Aria I CDO, which used bespoke securitisation structures that provide synthetic exposure to a portfolio of primarily investment grade obligors using credit derivatives as the method of underlying risk transfer. Aria involved the formation and capitalization of several special purpose vehicles that acquired credit exposure to reference obligors by selling credit protection to JPMorgan pursuant to single-name and/or portfolio credit default swaps. The swaps and other assets of the Issuer are managed by the portfolio manager. Advising IXIS Corporate & Investment Bank as arranger under the Chrome Programme on issues of credit-linked notes issued in different series (rated by Moody's and S&P) by a Jersey SPV (Chrome Funding Ltd) referenced on a number of asset backed securities and credit reference entities and secured by similar notes issued by IXIS CIB under its EMTN Programme and purchased by Chrome (230 million euros). Advising AXA Investment Managers, as portfolio manager, on the first ever syndicated jumbo CDO transaction. Overture CDO, a US$3.5 billion package involving both a euro and a US dollar tranche, was arranged by JPMorgan and placed around the world with the assistance of seven regional co-lead managers. Syndication is expected to improve secondary market liquidity for CDOs. The eurodenominated transaction (euro1.6 billion) was issued out of an Irish vehicle and comprised nine fixed, floating or accreting zero coupon tranches, one subordinated tranche and four different types of combination notes. The dollar-denominated transaction (US$1.5 billion) comprised seven fixed or floating tranches, one subordinated tranche and two types of combination notes issued by a Jersey vehicle, with a Delaware vehicle as co-issuer in relation to some of the tranches. Each transaction is linked to a separate portfolio consisting of both funded (bonds and loans) and unfunded (total return swaps and credit default swaps) obligations of mainly investment grade corporate credits. The synthetic (unfunded) part of the portfolio allows AXA Investment Managers to take long as well as short credit positions or offset any credit exposures through off-setting swaps. The Derivative Counterparty for the synthetic assets is CDC IXIS Capital Markets. The Linklaters team provided English, French and US law advice. Advising AXA Investment Managers, as portfolio manager, on the Fitch and Moody s rated 1 billion Tempo I synthetic CDO, involving a credit default swap referencing an actively managed portfolio of asset-backed securities and the issue by Tempo CDO 1 Limited, a Jersey CDO vehicle, of several tranches of senior and mezzanine secured floating rate notes. There are no subordinated notes issued by Tempo CDO 1 Limited. The excess spread and first loss credit risk together with all market risks flow through a parallel structure involving another Jersey SPV, Tempo CDO 2 Limited. Investors in the senior and mezzanine notes are, therefore, only exposed to pure (post-first loss) credit risk in respect of the underlying ABS portfolio. Advising BNP Paribas, as investment adviser and co-arranger, on the Moody's and S&P million rated cash-flow CDO relating to a portfolio of senior loans and mezzanine obligations, involving the issue of several tranches of secured fixed and floating rate senior and mezzanine notes, subordinated notes and combination notes by Leveraged Finance Europe Capital II B.V., a Dutch CDO vehicle, with a New Developments in 33

34 Rule 144A placement in the United States. Linklaters advised the investment adviser as to French law and the managers as to U.S. law. This transaction follows on from the 2001 Leveraged Finance Europe Capital I B.V. CDO, on which we also advised BNP Paribas. March 2003 Advising CDC IXIS Asset Management (as portfolio manager) on its S&P and Moody s rated Callisto I synthetic CDO with a managed portfolio of credit default swaps relating to investment grade credits. It involved a super senior swap and the issue by Callisto I CDO B.V., a Dutch vehicle, of several tranches of secured floating rate notes, subordinated notes and combination notes, with a Rule 144A placement in the United States ( billion) /2006

35 Selected Significant Transactions on Which the Linklaters Paris Securitisation and Structured Finance Group Recently Advised TITRISOCRAM Compartiment TS4 EUR 450,000,000 Calyon/Société Générale Socram Automobile Loans Securitisation June 2005 FCC PROUDREED PROPERTIES 2005 EUR Société Générale/HSBC Proudreed Commercial Mortgage Loans Securitisation October 2005 RETAIL ABS FINANCE Compartiment NORIA 2005 EUR 1,500,000,000 BNP Paribas Cetelem Consumer Loans Securitisation November 2005 EUROTRUCK LEASE EUR 600,000,000 Calyon/CIC Fraikin MBIA Whole Business-Type Securitisation July 2004 Amec-Spie EUR 150,000,000 Calyon Amec-Spie Pan-European Trade Receivables Securitisation December 2004 Rhodia EUR 300,000,000 Calyon Rhodia Pan-European Trade Receivables Securitisation January 2005 DOMOS 2003 EUR 790,010,000 BNP Paribas Union de Crédit pour le Bâtiment Residential Mortgage Loans securitisation December 2003 EUROPEAN CAPITAL PROPERTY I EUR 355,000,000 JPMorgan Ambac Barclays Commercial Mortgage Loans Securitisation March 2004 Cegelec EUR 275,000,000 Calyon Cegelec Pan-European Trade Receivables Securitisation April 2004 FCC COPY FIRST EUR 398,000,000 Merrill Lynch International Xerox MBIA Whole Business-Type Securitisation June 2003 FRANS 2003 EUR 620,000,000 Crédit Lyonnais JPMorgan Air France MBIA Aircraft Securitisation July 2003 COEUR DEFENSE FCC EUR 820,000,000 Morgan Stanley Unibail Commercial Mortgage Loans Securitisation December New Developments in 35

36 The Linklaters Paris Securitisation and Structured Finance Group Linklaters Paris is a cabinet d avocats that practises French, English and U.S. law and is a local market leader in finance. The Securitisation and Structured Finance Group at Linklaters Paris is part of the Capital Markets Department and of the Banking Department and is a specialised team composed of four partners and eight associates experienced in both domestic and cross-border securitisation transactions, involving a wide variety of assets, including commercial residential mortgage securitisations, automobile loan receivables securitisation, pan-european trade receivables securitisation programmes, whole business-type securitisations and synthetic securitisations. The Linklaters Paris Securitisation Group has been involved in some of the most significant recent securitisation transactions in France. The Securitisation and Structured Finance Group has participated in recent years in a significant number of securitisation deals (both synthetic and nonsynthetic) acting as legal counsel to arrangers, originators, financial guarantors, rating agencies or liquidity providers. Our team in Paris now includes fully integrated French/English/U.S. law and language capacity. The breadth and depth of our coverage of all principal market products (equity, equity-related debt, straight and structured debt (stand alone bond issues, EMTN programmes, structured and repackaging programmes and derivatives) and our offer of French advice on financial and investment management matters serves as a platform for developing and/or being in the forefront of innovative financial products. More than any capital markets team in Paris, Linklaters is a one stop shop for clients, both in terms of jurisdictional qualifications and experience in financial products. We have also significantly expanded our practice in the area of mainstream or more sophisticated and complex securitisations and structured finance, in particular with respect to collateralised loan/bond obligations (CDOs/CLOs) and fund-linked note structures. In addition, our Securitisation and Structured Finance Group can rely on particularly strong pan-european and U.S. capabilities, which has been demonstrated in recent months through our involvement in some of the largest and innovative securitisations. With dedicated securitisation teams in London, United States, Germany, Luxembourg, Spain and across Europe, we can field a multi-jurisdictional, multi-practice team combining a knowledge of different jurisdictions with international expertise. If you have any question in relation to the activities of the Linklaters Paris Securitisation and Structured Finance Group, please contact any of the persons referred to below: /2006

37 Bertrand Andriani Partner A partner at Linklaters since 1993, Bertrand Andriani is the Head of the Banking Department of Linklaters Paris. Bertrand Andriani specialises in structured finance and particularly in major structured asset and project financings, securitisations, banking transactions and derivatives. Significant matters of relevance that can be disclosed include the first Paris Club sovereign debt securitisation, the first French aircraft fleet securitisation (EETC-style financing) and the first French whole business type securitisations. Bertrand is fluent in English, Spanish and Italian. Olivier Jauffret Partner : olivier.jauffret@linklaters.com A partner at Linklaters since 2002, Olivier specialises in all types of structured financings, including structured capital market products, securitisation, OTC derivatives and property and acquisition financings. Recently, he has advised the arrangers on the securitisation of the Coeur Défense property complex in Paris and on the (partial exit) recapitalisation of an LBO structure by way of a pan- European securitisation of trade receivables. Olivier is fluent in English. Jérôme Pedrizzetti Associate jerome.pedrizzetti@linklaters.com Jérôme joined Linklaters in October 2003, having previously spent six years at a major French firm and one year at the New York office of a leading U.S. firm. He has advised arrangers, originators, liquidity providers and monoline insurers on French and multi-jurisdictional securitisation transactions. Recent transactions on which he was involved include the first IAS compliant securitisation transaction in France, the recapitalisation of an LBO structure by way of a multijurisdictional securitisation transaction and the first French whole business type securitisation. Jérôme is fluent in English and Italian. Grégoire Cruse Associate gregoire.cruse@linklaters.com Grégoire joined the Linklaters Paris capital markets group in March 2004, having previously spent four years at the Paris office of a major French firm. Grégoire specialises in the structuring, drafting and negotiation of securitisation transactions, both domestic and offshore. For the last four years, Grégoire has been involved in certain major pan-european securitisation transactions and in the setting up of multi-seller securitisation conduits. Grégoire is fluent in English. Gilles Endréo Partner : gilles.endreo@linklaters.com A partner at Linklaters since 1989, Gilles Endréo is the Head of Capital Markets Department of Linklaters Paris. Gilles Endréo s practice embraces most debt and equity deals, Tier 1 regulatory issues and fund-linked products. Gilles is fluent in English. Cenzi Gargaro Partner : cenzi.gargaro@linklaters.com A partner at Linklaters since 1996 specialising in most capital markets transactions including debt, regulatory capital, equity/equity-related, derivatives and fund-linked products. Cenzi speaks English, French and Italian. Emmanuel Lebaube Associate emmanuel.lebaube@linklaters.com Emmanuel joined Linklaters in May 2002, having previously spent more than four years in the securitisation group of a major UK firm in Paris. In the context of securitisation transactions, he has been working closely with arrangers, lead managers, monolines insurers, originators, rating agencies and regulatory authorities. He has particular experience and expertise in asset-backed transactions (residential mortgage securitisations, consumer loan securitisations, automobile loan securitisations, future utilities receivables securitisations, repackaging transactions, whole business-type securitisations and multi-jurisdictional trade receivables securitisation transactions). Emmanuel is fluent in English. Rob Stalford Associate rob.stalford@linklaters.com Rob joined Linklaters Paris capital markets group in He is primarily engaged in securities (equity and debt) offerings and listings, as well as Tier 1 regulatory capital issues, derivatives, repackagings, securitisations and CDOs. Rob speaks English and French. New Developments in 37

38 Linklaters Offices Worldwide Linklaters advises the world s leading organisations on their most challenging transactions and assignments. With offices in major business and financial centres, we deliver an outstanding service to our clients anywhere in the world. A collaborative approach is central to everything we do. However complex, urgent or challenging a transaction may be, we are motivated to help our clients succeed and work together to do so. We are a single, unified firm and our offices around the globe are integrated to allow a consistent level of service wherever our clients need to do business. One of our distinct qualities is our strength, not just across the globe, but also across all practice areas. We have cultivated market leading practices across the board. Read major legal directories and you will see Linklaters ranked in the top tier for almost everything we do. We are organised around three core areas - Corporate, Finance, and Commercial. Within these areas, relevant experts are on hand to provide their technical insight whenever needed. And of course these groups work with each other and across borders. Through these three global practice areas we deliver expert advice wherever we are called upon to do so /2006