Securitisation: mechanisms, players and legal framework

Securitisation is used in three very different contexts. A banker who wants to remove loans from his balance sheet to free up equity capital. A company treasurer looking to mobilise trade receivables at a lower cost than factoring. An institutional investor who subscribes to the securities issued. Behind these three entry points lies the same mechanism, but the legal interpretation is not the same depending on which side of the table you are on.

This guide is aimed at each of these three profiles, as well as at colleagues who are involved in a securitisation case or who have to challenge an assignment in a collection dispute. It is structured around a number of recurring questions: what exactly is a securitisation, who are the players involved, what legal regime applies in France, how does French law fit in with the European STS Regulation, and how in 2024 and 2025 the Court of Cassation ruled on the long-debated issue of the enforceability of the assignment against the assigned debtors.

What is securitisation?

Securitisation is a financial technique that transforms illiquid assets - usually receivables - into financial securities that can be traded on capital markets. It enables a credit institution or company to refinance itself immediately without waiting for the natural maturity of its receivables. Behind this simple definition, the arrangement rests on three inseparable pillars.

The first pillar is the transfer of assets. The originator - bank or company - transfers a portfolio of receivables that it holds. The second pillar is the creation of a dedicated vehicle called a securitisation vehicle (SPV). Special Purpose Vehicle (SPV). This entity, which is legally separate from the originator, acquires the debt. The third pillar is the issue of securities: to finance the purchase, the SPV issues shares or bonds subscribed by investors. The cash flows generated by the assets sold - monthly loan repayments, bill collections - are used to remunerate these investors.

The key element in the set-up is the legal isolation of the TO from the initiator. This is called bankruptcy remoteness. This principle means that in the event of bankruptcy proceedings against the seller, the securitised assets remain beyond the reach of its creditors. The investor who buys the securities is not exposed to the bankruptcy of the bank that created the portfolio, but only to the risk of default by the underlying debtors. The entire legal structure of securitisation is based on this watertight seal.

The wording of Article L. 214-167 reflects a major conceptual change. Until the Order of 13 June 2008, debt securitisation funds - the forerunners of TOs - were defined solely in terms of the assignment of receivables. The Order shifted the definition towards a broader logic: a TO is first and foremost a structure that «exposes itself to risks» and then finances them. This is not a semantic subtlety. It was this wording that opened the door to synthetic securitisation, catastrophe bonds and structured finance. whole business, which do not necessarily involve the transfer of assets.

The players in an operation

A securitisation transaction involves at least five parties whose roles are strictly defined by law. The allocation of functions is not just a question of efficiency; it also determines the legal legality of the arrangement and, in the event of a dispute, standing to sue.

The initiator

The originator - also known as the assignor or originator - is the entity that initiates the transaction. When the scheme was set up in 1988, only credit institutions could sell their receivables to an FCC. The scope was gradually extended. Today, any company can sell receivables to a securitisation vehicle, regardless of its legal status or sector of activity. In practice, three categories of originator dominate the French market: banks, which sell portfolios of mortgages, consumer loans and business loans; large industrial companies, which sell their trade receivables; and public and semi-public sector players, which sell administrative receivables.

The securitisation vehicle

The securitisation vehicle is the central pivot. French law offers a dual structure, described below: fonds commun de titrisation (FCT), an unincorporated co-ownership, or société de titrisation (ST), an incorporated company in the form of an SA or SAS. The choice between these two forms is not insignificant. It has implications for governance, taxation, presentation to international investors and litigation procedures.

The portfolio management company

The portfolio management company (PMC) is the orchestrator of the operation. It must obtain the status of investment services provider from the Autorité des marchés financiers (AMF) after an authorisation procedure that covers its capital, governance and the quality of its management. Its missions cover the entire life cycle of the TO: setting up the fund, issuing securities, calculating coupons, monitoring debt eligibility criteria, drawing up management reports, representing the TO before third parties and in court. Since the Order of 4 October 2017, positive law has enshrined a principle of monofoundation: an authorised asset management company may set up a CTF on its own, without a co-contracting depositary partner at inception.

The custodian institution

While SGP is the driving force behind the operation, the depositary is its custodian. The custodian has a dual role. The first is the safekeeping of assets: financial instruments, transfer slips evidencing receivables, record-keeping and spot-checking the existence of receivables. The second is to check that the decisions taken by the SGP are in order and to monitor cash flows.

The law lays down a rule of structural incompatibility: the same entity may not perform the functions of asset management company and custodian for the same entity. This separation is not decorative. It guarantees the impartiality of supervision and is consistent with the principles laid down in European law for UCITS and FIAs. The depositary's liability regime is strict: in the event of the loss of financial instruments entrusted to its custody, it is liable unless it can demonstrate force majeure (article L. 214-172 of the Monetary and Financial Code).

The collector, the arranger and the investors

Other players revolve around this core group. The arranger - usually an investment bank - structures the deal, draws up the documentation and places the securities. Rating agencies assess the quality of the portfolio and the tranches issued. The collector or servicer is responsible for administrative management and debt collection from debtors. In most French arrangements, the originator itself retains this function, enabling it to maintain relations with its customers. Finally, investors - banks, insurers, funds - buy the securities issued.

FCT and securitisation company: two structures, one purpose

Since 2008, French law has maintained a structural duality. The initiator has the choice between two forms of TO, whose regime, governance and image differ significantly. This choice is never neutral.

The majority of historic French deals have been structured as FCTs. The co-ownership system, coupled with tax transparency and the simplicity of the liability regime for unitholders, explains this predominance. The securitisation company was created in 2008 precisely to offer a clearer alternative to international investors, who were used to the corporate. It has never dethroned the FCT in terms of volume, but it remains the preferred option when the transaction is primarily aimed at Anglo-Saxon investors, or when the transferor's tax situation justifies a corporate screen.

In both cases, the cardinal principle remains legal isolation from the transferor. The transfer order - whatever its form - is a separate asset from the transferor, protected against the latter's bankruptcy. This protection is what allows the securities issued to be rated for the risk of the underlying assets, and not for the risk of the originator.

Types of risk exposure

The modern concept of securitisation has gone beyond the original framework of the simple transfer of receivables. Article L. 214-175-1 of the French Monetary and Financial Code now defines the purpose of a securitisation undertaking as its ability to «expose itself to risks», even before considering how they are to be financed. This wording confirms the supremacy of the financial rationale over the asset rationale and opens up a range of structures that the original securitisation did not.

Acquisition of receivables: the classic method

The acquisition of receivables remains the historical and, in terms of volume, the most common method of exposure. Article D. 214-219 of the French Monetary and Financial Code authorises OTs to acquire receivables arising from a contract already signed or a contract to be signed - even if the amount, due date or identity of the debtors have not yet been determined. Doubtful or disputed loans are also eligible, which explains the boom in the securitisation of distressed loans and the role of FCTs in recovering portfolios sold by banks to specialist companies such as MCS or iQera.

The nature of securitisable receivables is very broad: bank receivables (mortgages, consumer loans, corporate loans), commercial receivables (customer invoices, factoring receivables) and public law receivables. However, European Regulation 2017/2402 requires the portfolio to be homogeneous in order to qualify for the STS label - a rule that limits the combination of types of receivables within a single labelled transaction.

Synthetic securitisation and credit derivatives

Synthetic securitisation represents a more abstract form of risk exposure. In this arrangement, there is no transfer of ownership of the underlying assets: the receivables remain on the originator's balance sheet. Only the credit risk is transferred to the securitisation undertaking through the conclusion of credit derivatives, in particular credit default swaps (CDS).

The mechanism works by inversion. The TO acts as a protection seller: it receives a periodic premium from the originator and undertakes to indemnify the originator in the event of a credit event - payment default, restructuring - on the reference portfolio. The TO finances this protection by issuing securities whose remuneration and redemption are conditional on the absence of losses. If a credit event occurs, the TO pays the originator and the holders of subordinated securities absorb the loss. This technique, provided for in Articles L. 214-175-1 and R. 214-224 of the French Monetary and Financial Code, enables the originator to hedge without having to transfer its assets - a major advantage when transferring assets raises legal, tax or commercial difficulties.

Transfer of insurance risks

The flexibility of securitisation means that it can be applied to risks other than credit risk. Insurance risk transfer offers insurance and reinsurance companies an alternative to the traditional reinsurance market. The TO acquires risks linked to specific events, often catastrophic - storms, earthquakes, hurricanes - and issues securities known as "insurance bonds". catastrophe bonds. The return on these securities is high, but their repayment is conditional on the insured loss not occurring: if the disaster occurs, holders lose all or part of their capital. The creation of a dedicated insurance transfer order is subject to approval by the Autorité de contrôle prudentiel et de résolution.

Whole business securitisation

Business securitisation is a large-scale arrangement that is not based on a specific portfolio of receivables, but on all the future income streams generated by a company's business. The company transfers its strategic assets - brands, patents, licences, property - to an ad hoc company, which obtains a bank loan secured by these assets. The receivables arising from this loan are then transferred to a special purpose vehicle, which issues securities. This arrangement, which has been imported from the UK, makes it possible to raise much larger amounts than would be possible with traditional securitisation of receivables. On the other hand, it is very complex to document and requires a detailed valuation of the underlying assets.

Credit enhancement techniques

Credit enhancement - credit enhancement - refers to all the techniques used to improve the credit quality of securities issued by a TO. The aim is twofold: to reduce the risk of loss for investors and to obtain a better rating from specialist agencies. A better rating enables the securities to be placed with a wider circle of investors, at a lower cost of financing.

The subordination of tranches

The most fundamental technique is internal to the structure of the TO's liabilities. It consists of creating several categories of securities, called tranches, with different priorities. Lower-ranking securities - subordinated or junior - absorb any initial losses on the portfolio. In this way, they protect the higher-ranking tranches. mezzanine and senior - which will only suffer losses if the subordinated tranches are completely wiped out. In return for this higher risk, subordinated securities offer a potentially higher return.

Le slicing This is what allows a securitisation to combine medium-quality loans with AAA-rated senior tranches in the same portfolio. It is also what led to the excesses of the collateralized debt obligations before 2008, when the complexity of tranche cascades meant that investors lost sight of the real risk.

Oversizing

Oversizing - overcollateralization - consists of ensuring that the nominal value of the securitised assets is greater than the nominal amount of the securities issued. For example, a TO acquires a portfolio of receivables worth €110 million but issues only €100 million in securities. The difference of €10 million constitutes a safety margin that absorbs debtor defaults before they affect holders.

External guarantees and subordinated loans

External guarantees involve the intervention of a third party - usually a financial institution with an excellent credit rating. The autonomous first-demand guarantee under article 2321 of the French Civil Code is the most robust form: unlike a surety bond, the guarantor cannot raise exceptions relating to the underlying claims to refuse payment. This choice is not anecdotal: it prevents disputes over the validity or recovery of an individual claim from contaminating the performance of the guarantee.

The TO may also take out subordinated loans from the seller or a financial institution. Repayment of these loans is subject to full payment by the security holders, providing an additional cushion of protection.

Reserve funds

The reserve fund is a direct method. At the start of the operation, a sum of money is deposited in a specific TO account to cover initial losses or temporary cash shortfalls. This immediate liquidity means that payments to investors can be honoured even if debtors fall behind with their payments.

Transfer by slip: a special system

This is the point that has changed most in case law over the last two years. The transfer regime applicable to securitisation undertakings departs from the ordinary law governing the transfer of receivables. All that is required for the transfer to be complete and enforceable against third parties is the delivery of a slip - a simplified formal document. Article L. 214-169 of the French Monetary and Financial Code lays down the rule: the assignment takes effect and becomes enforceable against third parties on the date stamped on the docket, without the need to serve it on the debtor or accept it by deed.

For three decades, this rule coexisted with a practical doubt: was it still necessary, in order to make the assignment enforceable against the assigned debtor himself, to effect service in accordance with articles 1690 and 1324 of the Civil Code? The question was far from theoretical. In collection cases, debtors regularly argued that the assignment could not be set up against them on the grounds that they had not been duly informed of the transfer of their debt to a CTF. The lower courts hesitated.

The Commercial Chamber confirmed and generalised this position on 26 March 2025 (no. 23-23.857), specifying that article 1324 of the Civil Code - which requires notice to be given to the debtor as a condition of opposability under the new regime introduced by the 2016 Ordinance - does not apply either. The system of assignment by bordereau is self-sufficient. This twofold decision has definitively put an end to an argument that was almost systematically used in defence.

However, this formal simplicity is tempered by an important clarification. On 15 March 2023 (no. 21-24.490, published in the Bulletin), in a dispute concerning a slip assigning business debts within the meaning of the Dailly Act, the Commercial Chamber pointed out that a slip without a date is deprived of all effect, and that this omission cannot be made up for by any other means - notification, acknowledgement, commencement of performance. This formal rigour applies by analogy to securitisation schedules: as the date of the schedule is the exact moment of perfection, its absence deprives the assignment of any legal effect. In practice, checking the date of the docket is now the first thing to do when defending a debt collection dispute.

A final point of friction on assignment: a guarantor who disputes the right asserted against him or her retains the right to exercise the disputed withdrawal under article 1699 of the Civil Code, even when the claim has been assigned en bloc to a CTF with a large number of other claims. This was ruled by the Commercial Chamber on 14 February 2024 (no. 22-19.801, published in the Bulletin). This decision opens up a course of action to a guarantor who has been summoned for payment by the assignee and who may, if the price is determinable, pay exactly that price in order to be released.

Recovery of securitised receivables

Collection is where securitisation meets litigation in practice. Assignee CTFs - often recovery funds such as Quercius, Ornus or Absus, managed by Equitis Gestion or MCS - have become recurrent players in civil and commercial courts. Judilibre's figures confirm this: in 2025, several dozen judgments published in the Bulletin mentioned a CTF as a party to a collection dispute against a defaulting debtor or a guarantor.

The central issue in defence is standing. Who can sue the debtor: the CTF? The management company representing it? The debt collector designated in the deed of assignment? Article L. 214-172 of the French Monetary and Financial Code provides that the entity responsible for collection may directly represent the organisation in all legal actions relating to the management and collection of receivables, without a special mandate. This option is essential: it enables the originator, who retains the customer relationship, to act without having to produce a power of attorney from the asset management company every time.

On 6 March 2024 (Cass. com., no. 22-16.074), the Court of Cassation ruled that the designation of the debt collector in the deed of assignment itself constitutes a sufficient agreement to that effect. In other words, the mere mention in the assignment contract between the bank and the CTF that the bank retains the debt collector gives the bank standing to act, without any further formality. This position considerably simplifies practice and closes a procedural argument that was frequently raised until now.

One final point deserves attention. In a dispute where the debtor contests the existence or validity of the claim, he may demand production of the assignment slip to check that the disputed claims are indeed included. The document must be produced in its entirety - including a detailed list of the assigned claims - and case law punishes a CTF that is content to produce an extract or an incomplete document. Article 1353 of the Civil Code applies: it is up to the claimant - the CTF acting through its collector - to prove that it is the owner of the debt it is claiming.

The European framework and the STS label

French securitisation law no longer exists in isolation. Since Regulation (EU) 2017/2402 of 12 December 2017 came into force, the European market has been governed by a common set of obligations and a quality label, Simple, Transparent and Standardised (STS) securitisation. This framework was built in response to the subprimes, which discredited the technique for an entire decade.

The three pillars of the STS label

A securitisation can only be awarded the STS label if it meets three sets of criteria. Simplicity requires that the underlying assets be homogeneous - an STS portfolio cannot mix mortgages, car loans and commercial invoices - and that the transfer take the form of a perfected sale (true sale) which effectively removes the assets from the seller's balance sheet. Active management of the portfolio is excluded: once it has been set up, it can no longer be modified, subject to limited exceptions.

Transparency requires the originator to provide granular data on each exposure, a performance history and a clear description of the payment cascade. Investors must be able to model the flows themselves without having to decipher opaque clauses. Standardisation harmonises legal documentation, cash flow models and market practices, making it easier to compare transactions and reducing analysis costs. This last requirement is in line with the logic of a single market: a securitisation issued in France must be as legible in Frankfurt or Amsterdam as it is in Paris.

For a deep dive into the STS criteria, the documentation to be produced and the associated prudential advantages, our analysis dedicated to the STS label sets out in detail the structural choices to be made in order to access the scheme.

Obligations applicable to all European securitisations

In addition to the label, Regulation 2017/2402 imposes a set of obligations common to all securitisations in the EU. The risk retention obligation requires the originator to retain a net economic interest of at least 5 % in the transaction. This rule guarantees an alignment of interests: the originator of the transaction remains exposed to the risk and is encouraged to select the assets rigorously. Institutional investors are subject to enhanced due diligence - they must carry out their own checks and can no longer rely solely on agency ratings. All securitisations must be reported to a central repository (securitisation repository) approved by ESMA. Finally, the regulation prohibits re-securitisation as a matter of principle - securitising products that have already been securitised - and requires that the securitised loans have been granted according to the same criteria as those held on the balance sheet.

The STS label confers more favourable prudential treatment on securitisations that comply with it. Capital requirements for banking and insurance investors are reduced, making STS securities more attractive to hold. High-quality senior STS positions are recognised as high-quality liquid assets (HQLA) and can be included in the calculation of banks' short-term liquidity ratio (LCR). Initially reserved for traditional securitisations, the label was extended to on-balance sheet synthetic securitisations by Regulation (EU) 2021/557 of 31 March 2021.

The first French examples

Two deals illustrate the label's rise to prominence on the French market. In March 2019, Crédit Immobilier de France carried out one of the very first European STS securitisations, involving a portfolio of over €1 billion of residential property loans, structured via an FCT. At the end of 2022, BRED Banque Populaire carried out an STS transaction of almost €2.5 billion on residential property loans - the senior bonds obtained AAA ratings from two major agencies and were admitted to trading on Euronext Paris. These two transactions show that the French FCT structure is perfectly compatible with the European label and that the French market is capable of producing benchmark securitisations.

The legal status of investors

Investors who subscribe to the securities of a TO enter into a legal framework whose contours vary according to the form of the organisation (FCT or ST) and the nature of the securities (units, shares, bonds). Understanding this framework is essential for understanding the rights available - and those not available - in the event of difficulty.

FCT unit holders: passive co-owner status

The securitisation mutual fund is a co-ownership vehicle (L. 214-180 CMF). Investors who subscribe for units become co-owners. However, this status does not confer on them the prerogatives usually attached to ownership rights. The principle is one of non-interference: unitholders have no direct power over the day-to-day decisions of the fund. The rules governing undivided ownership and joint ventures are expressly excluded. The SGP represents the fund in dealings with third parties and in court.

In return for this passive attitude, the liability of unitholders is strictly limited. Article L. 214-184 of the French Monetary and Financial Code stipulates that they are only liable for the fund's debts up to the issue value of their units. A shortfall in assets cannot give rise to an action against them to make up the liabilities - a rule that protects them from the setbacks that can be experienced by partners in certain types of company. As a matter of principle, the right to repayment and remuneration of units is subordinate to that of creditors with a higher ranking - which means that unit-holders are the residual creditors of the fund.

Bondholders: organised collective protection

TOPs may issue debt securities, usually in the form of bonds. Bondholders have creditor status, with priority of payment over shareholders. Article L. 228-46 of the French Commercial Code stipulates that holders of the same issue are automatically grouped into a «masse» with legal personality, represented by one or more representatives who ensure that the common interests are protected and can take legal action. This collectivisation is a procedural protection for small holders - it prevents them from having to act individually against an issuer that always has greater resources than they do.

Shareholders of securitisation companies

Investors in a securitisation company acquire shareholder status and, in principle, enjoy the traditional rights: attendance at meetings, voting rights and the right to information. However, the legislator has introduced a number of relaxations to take account of the special nature of the business: the ordinary general meeting may be held without a quorum (L. 214-179 CMF) and effective management is delegated to an external asset management company. In practice, the real power remains with the SGP and shareholders are limited to ratifying the accounts and approving structural decisions.

Prohibition on buy-back by the organisation

There is one fundamental difference between EO and traditional UCITS: Article L. 214-169, V, 5° of the French Monetary and Financial Code prohibits unit holders or shareholders from requesting the redemption of their securities by the fund itself. Investors wishing to exit the fund can only sell their shares on the secondary market. This rule is justified by the illiquid nature of the assets held by the scheme - if redemption were possible, the TO would have to sell claims as a matter of urgency to honour the exit, to the detriment of the other holders. It also explains some of the liquidity risk that affected the secondary market for securitisation securities during the 2008 crisis.

When should you call a lawyer?

The involvement of a lawyer in a securitisation case is justified at several different stages. During the structuring phase, when the originator - bank, fund or company - is preparing a transaction and has to decide between FCT and ST, between cash or synthetic securitisation, between STS or non-STS labelling. The structural choices made at this stage determine everything else, and it is extremely costly - if not impossible - to go back on them once the securities have been placed.

During the assignment phase, to secure the docket, check the eligibility of the receivables and ensure that the formal conditions have been met. If the list of assigned receivables is undated or insufficiently precise, there is a systematic risk of litigation, and case law has drawn a clear line in the sand on this point.

In the collection litigation phase, the debtor is sued for payment by a CTF. The defences are limited - the assignment is enforceable without service, the debt collector has standing to act solely by virtue of the assignment agreement, and article 1690 is disregarded - but they are not non-existent. Checking the date and completeness of the slip, the relationship with the guarantor's rights, the issue of contentious withdrawal and contesting the list of assigned claims remain effective levers. Solent Avocats is involved in each of these stages, working alongside both the initiators and the debtors or guarantors involved. To place this matter in its wider context, see our complete guide to banking law or the page devoted to our work in banking and finance law.