Legislation approved by the Belgian parliament last month will enhance the framework for covered bond issuance in the country, Fitch said today (Monday), although it reserved final judgement until it has carried out a more detailed examination.

The rating agency said that the draft law and accompanying draft mobilisation law (“Projet de loi relatif à des mesures diverses pour faciliter la mobilisation de créances dans le secteur financier”) look positive and enhance the framework for securitisation as well as covered bond issuance in the country. It said that the legislation contains provisions that aim to make it simpler and less costly to pledge or transfer a broader range of assets, such as bank loans to public sector entities, into cover pools or SPVs.

“It also aims to clarify questions relating to the transfer of credit claims,” added Fitch. “It seems to confirm the prohibition of legal and contractual set-off following the assignment or pledge of receivables, and/or their use as collateral, as well as following the insolvency of the seller, regardless of any connection between the relevant debts.

“It should also address the similar risk of ‘the defence of non-performance’ (exceptio non adimpleti contractus or ENAC, identified by one academic during the financial crisis of 2008) whereby borrowers who have deposits outstanding with a bankrupt lender may seek to suspend loan repayments until their deposits are returned.”

Fitch said that the legislation aims to extend rules currently applicable to mortgage receivables to revolving credit facilities, all-sums mortgages, and mortgage mandates. Contractual priority arrangements between transferor and transferee should automatically take effect in relation to third parties, said the rating agency, which could mean that greater credit can be given to subordination clauses in transaction documents.

“This appears to considerably improve and clarify the provisions of existing Belgian law,” said Fitch. “Measures have also been introduced to ring-fence cover pool assets from the claw-back provisions contained in Belgian insolvency rules.”