Compagnie de Financement Foncier’s annual issuance could halve and its focus shift to public sector collateral under BPCE plans to integrate the real estate activities of Crédit Foncier into the group. The move could also ease any clash between its mixed pool and the proposed Directive.

BPCE on Tuesday announced a project aimed at integrating Crédit Foncier’s activities and employees into the group in a bid to better position the group vis-à-vis the real estate sector. Compagnie de Financement Foncier (CFF) is the covered bond-issuing vehicle of Crédit Foncier de France, which is in turn a subsidiary of BPCE.

The French group said that under the plan Crédit Foncier will have two roles: refinancing the group via CFF, which would itself be repositioned to refinancing public sector assets; and managing the existing portfolio of loans until their maturity.

“Subject to modifications and in the event of implementation of this project, the Compagnie de Financement Foncier would remain a strategic subsidiary of Groupe BPCE, under the affiliation regime, therefore adhering to the Group’s solidarity mechanism,” said Crédit Foncier. “BPCE would continue to ensure the proper repayment of the debt issued by the Compagnie de Financement Foncier.”

Cristina Costa, senior covered bond analyst at SG, said she sees the restructuring as “an evolution, rather than a revolution”.

“It is important to highlight CFF will not be run off or wound down,” she added, “and the preferential regulatory treatment of its covered bonds will remain intact.”

According to Costa, CFF’s cover pool at end-March was split 52% residential mortgages, 39% public sector assets, and 9% substitute assets. She forecasts that the share of public sector loans will increase and that CFF’s annual funding programme will fall from around EUR4bn-EUR6bn per year to EUR2bn-EUR3bn.

Market participants have noted that CFF’s mixed cover pool is the most high profile example of one that could fall foul of Article 10 of the European Commission’s proposed covered bond Directive, regarding homogeneity of assets. Although this Article looks set to be redrafted to avoid restricting well-functioning business models, CFF’s focus on only public sector loans could also ease any conflict between existing practices and the proposed Directive, according to analysts.

Crédit Foncier’s A- rating, on positive outlook, from S&P was unaffected by the plan, which the rating agency said endorses the subsidiary’s “durable entrenchment” in the BPCE group.

Moody’s today (Friday) upgraded BPCE from A2 to A1, and Crédit Foncier’s counterparty risk (CR) rating from A1 to Aa3, among other actions on group entities.

The BPCE group already also issues covered bonds through BPCE SFH.