Case study

New Issue: Phebus Finance S.A.

by Professor Ian H. Giddy
New York University

New Issue: Phebus Finance S.A.
Eur275 million Euro commercial paper program

Ratings Detail

Profile

New Rating
EURO CP prog auth amt EUR275 mil	A-1

Closing date: Dec. 1, 1999

Transaction Summary

Collateral: FCC units issued by FCC Securifact and rated AAA.

Underwriter: Credit Commercial de France.

Seller: FCC Securifact.

Servicer: Credit Commercial de France.

Adviser: CCF Charterhouse and Titrisation et Finance Internationales.

Liquidity Agent: Credit Commercial de France.

Manager: Titrisation et Finance Internationales.

Rationale

The rating of Phebus Finance S.A. (Phebus), the issuer, by Standard & Poor’s reflects the credit quality of the asset purchase agreement providers, the underlying assets, and the letter of credit provider, as well as the bankruptcy-remote nature of the issuer and the soundness of the legal structure.

Unique Features

Phebus aims to refinance securitization transactions enhanced by the Assurances Générales de France (AGF) Group. In particular, Phebus refinances receivables originated by Société Française de Factoring (SFF) and one of its clients, ISA France. SFF is the second-largest factoring company in France, with a market share of 15.6% in 1998. ISA France is one of the leading computer-equipment distributors in France, with a turnover of French franc (FFr) 2 billion (US$307.64 million) forecast for 1999. The refinancing is made through the use of an intermediate fonds commun de créances (FCC) having compartment-issuing units that Standard & Poor's has rated at a level consistent with the rating of the commercial paper issued by Phebus.

Management Overview

Phebus has been set up to purchase the 'AAA'-rated senior units issued by FCC Securifact and to issue euro-denominated commercial paper. Phebus is advised by CCF Charterhouse and Titrisation et Finance Internationales (TFI) and is managed by TFI.

Structure Overview

Phebus has purchased all senior units issued by FCC Securifact using the proceeds of the issuance of commercial paper (billets de trésorerie).

Phebus is structured to refinance the FCC senior units by issuing several tranches of commercial paper with different maturities; all commercial paper matures on the FCC payment date.

Because commercial paper have a shorter maturity than the FCC units, Phebus is exposed to a liquidity risk. To cope with this risk, Phebus benefits from a 100 % liquidity facility, so that if it cannot reissue commercial paper, it has the right to draw on the liquidity facility in order to repay the commercial paper.

Commercial Paper Issuance

Pursuant to the management agreement, TFI, as manager of Phebus, is responsible for arranging commercial paper issuance and verifying, with Credit Commercial de France (CCF) as liquidity agent, that Phebus has entered into liquidity facilities with eligible counterparties to receive amounts sufficient to redeem the issued and outstanding commercial paper at maturity.

Before the commercial paper issuance, the manager shall also ensure that:

The outstanding commercial paper does not exceed either euro (Eur) 275 million or the available liquidity facility;
The maturity date falls on or before the expiration date of the liquidity facilities;
The maturity falls at the latest nine days before, or on the FCC payment date; and
All parties are solvent.

The face amount of commercial paper issued is limited to the refinancing need; and the refinancing need is calculated three days before the rollover date and is equal to the FCC units being purchased by Phebus (newly issued by FCC Securifact and/or resold by the liquidity providers), plus maturing commercial paper on such payment date, minus principal and interest on the FCC units effectively paid to Phebus.

Collateral

The currently issued FCC Securifact units represent a portfolio of trade receivables issued by SFF and one of its clients, ISA France. FCC is composed of two compartments dedicated to SFF and ISA France, with similar characteristics such as the payment date on the FCC units. The total amount of senior units issued by the two compartments is limited to a maximum amount of French franc 1.7 billion, or Eur259.2 million, and has been fully subscribed by Phebus. Interest is payable quarterly on the FCC units of each compartment, and reflects the cost of funding on the commercial paper market and/or on liquidity drawings. FCC is managed by Gestion et Titrisation Internationales.

The FCC units' final maturity occurs in August 2005. FCC Securifact senior units are rated 'AAA' by Standard & Poor's based on a first-demand guarantee delivered by AGF IART, on a reserve account mechanism and on the soundness of the structure.

Liquidity and Credit Support

Phebus benefits from a syndicated liquidity facility in the form of an asset purchase agreement of up to Eur275 million, provided by banks rated at least 'A-1' short term. The issuer can sell the FCC units to the liquidity providers for up to 100% of the commercial paper issued, if there is a market disruption or to meet any refinancing needs of Phebus. Issuer fees and expenses are covered through the payment of interest received from the FCC. Phebus also has a cash reserve of Euro 167,694 and a FFr1.5 million guarantee provided by a credit institution rated at least 'A-1,' which covers one year's expenses.

Interest Rate Protection

Investors are fully protected against adverse interest-rate movements owing to the definition of interest payable under the FCC Securifact units and to a commercial paper issuance test requiring that available liquidity be always sufficient to redeem existing commercial paper.

Payment Priorities

Monies collected from the collateral will be transferred by the seller, pursuant to the management agreement, to the collection account. The account bank will at all times be a bank rated by Standard & Poor's at least as high as the rating of the commercial paper notes. Amounts standing to the credit of the operating account will be drawn and distributed according to the following priority of payments: issuer fees and expenses, commercial paper, and any sum due to the liquidity providers.

Legal Issues

Phebus is a special purpose entity incorporated under French law that meets Standard & Poor's bankruptcy-remote criteria. It is limited in its business purpose and may not incur any material debt other than the rated commercial paper. All parties to the transaction agree not to force the issuer into bankruptcy. Any change in the transaction documents will be subject to a rating confirmation by Standard & Poor's.

Surveillance

Standard & Poor's will maintain continuous surveillance on the transaction until the commercial paper mature or are otherwise retired. To do this, Standard & Poor's will:

Monitor all supporting ratings and
Stay in regular contact with the managers to ensure that minimum servicing standards are maintained and to keep informed of any new developments in the servicer's operations.

A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension, or withdrawal at any time by Standard & Poor’s. Standard & Poor’s expects to assign the ratings indicated above on the closing date. However, the final rating is subject to receiving complete documentation and satisfactory legal opinions.

Contacts
Remi Charrier, Paris (33) 1-4420-6681

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