Compagnie de Financement Foncier

Asset purchasing criteria by category

Although regulations require that Sociétés de Crédit Foncier invest only in high quality assets, to limit its exposure to credit risk, Compagnie de Financement Foncier implements additional asset purchasing criteria that include purchasing scores and minimum credit ratings. Compagnie de Financement Foncier will not, for example, buy commercial real estate assets. For more information about this see the section on asset selection.

Furthermore, Compagnie de Financement Foncier replacement securities have the highest external credit ratings. The minimum acceptable credit rating for each asset (except for intragroup assets(1)) depends on the investment horizon and must meet the minimum rating criteria of each of the three main agencies, as shown below:

Limiting counterparty risk

The Crédit Foncier Group’s risk policy specifies per-counterparty limits and Compagnie de Financement Foncier observes these limits in its decision process. For its hedging transactions and repurchasing agreements the company executes a framework agreement with each of its counterparties, with asymmetrical collateralization and other specific terms set forth in an appendix to this agreement.

The counterparty agrees to pay Compagnie de Financement Foncier on a daily or weekly basis depending on the counterparty’s rating a security deposit equal to its net debt position, with no compensation for this.

Systematically hedged variable-rate assets and liabilities

Management of interest rate risk

Compagnie de Financement Foncier is committed to keeping its interest rate gaps within the specific limits set for each period and to correct any excess observed by the following quarter.

Compagnie de Financement Foncier’s balance sheet is structurally protected against interest rate risk, since assets and liabilities are systematically hedged with adjustable-rate swaps.

No currency risk

Compagnie de Financement Foncier maintains no open currency positions. Asset purchase or refinancing transactions that are not denominated in euros are systematically hedged against currency risk.

In practice, Compagnie de Financement Foncier limits its residual currency positions to 0.1% of its balance sheet.

Compagnie de Financement Foncier observes strict management rules that ensure that it always maintains enough liquidity to honor its privileged liability commitments for one year, with no need for new resources in a run-off scenario.

Thus, Compagnie de Financement Foncier’s cash position (with no new activity) is sufficient at any given time to meet the contractual payments on its privileged debt over the coming twelve months.

Since €33 billion of the its assets are eligible for the ECB’s liquidity facility, it could service its payments and comfort its liquidity for much longer than the 12 months it committed to.

Long aware of the importance of maintaining liquidity, as early as 2007 the CFF group implemented a rigorous policy for managing its liquid assets. The high quality of Compagnie de Financement Foncier’s assets, and in particular of its eligible securities and receivables, give it immediate access to funding from central banks, such as the ECB for  important amounts.

Compagnie de Financement Foncier also limits the duration gap between its assets and its overall liabilities to two years at most. At December 31, 2009, the duration gap was insignificant (asset duration being 6.44 years and liabilities duration being 6.45 years).

These additional risk management rules provide extra security for investors in the company’s privileged debt.