A new French finance law is credit positive for CIF Euromortgage obligations foncières and French covered bonds in general, said Moody’s on Friday, because it clarifies the extent of a state guarantee of claims against the CIF group, and shows the government’s willingness to support French covered bonds.

The finance law was enacted on 29 December and, according to Moody’s, is beneficial for CIF Euromortgage’s covered bonds because it clarifies that a government guarantee of CIF group financial obligations covers certain claims that CIF Euromortgage has against 3CIF, and which make up 20% of the cover pool.

Covered by the state guarantee are all assets qualifying as substitute assets in French cover pools, said Moody’s, such as 3CIF’s deposit certificates (certificats de dépôts) and a short term residential-backed loan that CIF Euromortgage granted to 3CIF.

However, Moody’s noted that promissory notes (billets hypothécaires), which are cover pool eligible assets backed by residential mortgages, are excluded from the guarantee because they do not qualify as substitute assets under French covered bond law.

Moody’s also noted that the state guarantee extends to senior unsecured bonds issued by 3CIF up to Eu16bn and that this indirectly benefits CIF Euromortgage covered bonds as the senior unsecured issuance may be used to refinance maturing CIF covered bonds.

The rating agency also said that the law also shows that the government is willing to support covered bonds issued under its jurisdiction.

“Similar to Dexia Municipal Agency’s recent restructuring,” said the rating agency, “we believe that the government’s enactment of the 2013 law reflects its view that the French covered bond product is an important source of funding to French banks, and that the government might extend support to other programmes, if required.”

The French state has recently become the main shareholder of the new parent of the successor to Dexia Municipal Agency, Caisse Française de Financement Locale. (See here for previous coverage.)