The security interest granted by the Borrower to the Issuer and the security interest granted by the Issuer to the “covered bonds” holders are under the legal framework of the French "Code Monétaire et Financier".
By the Borrower
Article L.211-36 of the "Code Monétaire et Financier":
Implementation of the collateral Directive in France
To secure the advances made by the issuer under the borrower facility agreement, CMCEE CIC will pledge a portfolio of residential loans in favour of the issuer. This security is created in compliance with the provisions of articles L211-36 and Seq of the French "Code Monétaire".
Article L211-36 of the French "Code Monétaire" was passed in 2005 to implement the EU Collateral Directive 2002/47. The purpose of the Directive is to protect the validity and enforceability of financial collateral arrangements, including the substitution of assets, from the adverse effects of bankruptcy.
The use of this innovative legal framework provides considerable flexibility and security, as creation and perfection of the collateral only require a written agreement between the parties and proper identification of the collateralised assets.
In comparison with Sociétés de Credit Foncier and the Caisse de Refinancement de l’Habitat, the implementation of articles L211-36 and seq of the French "Code Monétaire" allows CMCEE CIC to expand its financing of fully secured residential loans not only to mortgages but also to loans with a "Credit Logement" or "Cautionnement Mutuel de l'Habitat"guarantee without having the constraints of the “proportion rules” as provided respectively by articles R 313-24 for the CRH and R 515-6 of the French "Code Monétaire", for SCF.
Although the assets constituing the collateral pool may remain in the Borrower’s balance sheet, upon enforcement of the security, the collateral assets will be transferred to the beneficiary of the security, together with the guarantees securing these assets (such as mortgages). The security will be called upon a borrower enforcement notice, at the latest when CMCEECIC defaults under the borrower debt.
Therefore, the definitive transfer of the ownership of the collateralised assets, even if BFCM is under the protection of bankruptcy law, will be effective vis-à-vis third-parties without further formalities.
By the Issuer
Article L. 521-1 and L. 521-3 of the French "Code de Commerce" and articles 2355 and seq. of the French Civil Code (Code civil) :
Pledge on all Issuer’s assets, bank accounts and claims
The Issuer charges to the “covered bonds” holders, as represented by the Issuer Security Agent, all its rights, title and interest, whether present or future, actual or contingent, in respect of the Issuer Cash Accounts in accordance with the provisions of articles L. 521-1 and L. 521-3 of the French "Code de Commerce" and articles 2355 and seq. of the French "Code Civil".
Pursuant to the said provisions, a debtor, such as CM-CIC Covered Bonds, can pledge any of its intangible assets, actual or future, as security for an obligation.
If payment is not made in the due date, the Issuer Security Agent may sell the assets held as security.
