DBRS Releases Commentary on French Covered Bonds Legal and Structuring Framework

DBRS Ratings Limited (DBRS) has today published a commentary discussing its assessment of the Legal and Structuring Framework (LSF) of the French mortgage-backed obligations foncières (OF) and obligations de financement de l’habitat (OFH). This commentary is intended to give market participants insight into the characteristics DBRS takes into account when assessing the LSF for French OF and OFH programmes.

DBRS understands that the legislation currently in place gives OF/OFH holders a priority right in the cover pool upon issuer insolvency. In DBRS’s view, this provides the OF/OFH holders strong protection. In DBRS’s understanding, a residual risk remains that the segregated cover pool may not ensure timely payments on the OF/OFH immediately following the insolvency of the reference entity as a result of the mechanisms through which liquidity risk is addressed.

The report expands on this and more issues that contribute to DBRS forming a view on the LSF assessment of OF/OFH. LSF assessment is one of the four pillars of the DBRS criteria used to assign ratings to European covered bonds in accordance with its “Rating European Covered Bonds” methodology. LSF assessment is assigned to each OF and OFH programme rated by DBRS based on the specific structural features of the programme.

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A copy of this commentary is available by contacting us at info@dbrs.com.