
[Federal Register: July 28, 2009 (Volume 74, Number 143)]
[Notices]               
[Page 37256-37258]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28jy09-76]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28835; 812-13573]

 
Compagnie de Financement Foncier; Notice of Application

July 22, 2009.
AGENCY: Securities and Exchange Commission (the ``Commission'').

ACTION: Notice of application for an order under section 6(c) of the 
Investment Company Act of 1940 (``Act'') for an exemption from all 
provisions of the Act.

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Summary of Application: Applicant Compagnie de Financement Foncier 
(``CFF''), a specialized credit institution, requests an order 
exempting it from all provisions of the Act in connection with the 
offer and sale of its securities in the United States.

Filing Dates: The application was filed on September 17, 2008, and 
amended on June 22, 2009.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on August 12, 2009, and should be accompanied by proof of service 
on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090. Applicant, c/o John D. Watson, 
Jr., Latham & Watkins LLP, 53, quai d'Orsay, 75007 Paris, France.

FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at 
(202) 551-6817, or Janet M. Grossnickle, Assistant Director, at (202) 
551-6821 (Division of Investment Management, Office of Investment 
Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or an applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.
    Applicant's Representations:
    1. CFF, a limited liability company organized under the laws of the 
Republic of France, is a Soci[eacute]t[eacute] de Cr[eacute]dit Foncier 
(``SCF''), a specialized credit institution authorized and licensed 
under French law and regulated and supervised by French banking 
authorities. Applicant represents that the sole permitted business of a 
SCF is to provide financing to the housing and public sectors in France 
and a limited number of other developed countries. Applicant further 
states that, subject to a comprehensive statutory and regulatory 
framework, a SCF conducts this business by (a) making or acquiring 
mortgage loans (which include loans incurred to acquire real property 
and secured by a mortgage or, in certain limited circumstances, other 
high-quality credit support); (b) extending financing to public sector 
entities by making public sector loans or acquiring public sector 
obligations; and (c) acquiring debt securities backed by mortgage loans 
or public sector obligations (collectively, ``Eligible Assets''). 
Equity securities or other equity interests are not treated as Eligible 
Assets and are not permitted to be held by a SCF.
    2. As a SCF, CFF states that it finances its business through the 
issuance of covered bonds, a type of debt security governed by French 
law. French covered bonds, known as obligations fonci[egrave]res, and 
the SCFs that issue them are governed by the Savings and Financial 
Security Act of 1999 (the ``SFSA Law'').\1\ Applicant states that under 
the SFSA law, only credit institutions licensed and regulated in France 
as a SCF may issue obligations fonci[egrave]res. However, CFF is not 
permitted under the SFSA Law to accept demand deposits and may only 
carry out the specific banking activities that are consistent with its 
purpose as a SCF, which is to acquire Eligible Assets and to issue 
covered bonds (or

[[Page 37257]]

other debt securities) in order to finance the acquistion of Eligible 
Assets.
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    \1\ Applicant represents that the French public law regime 
governing obligations fonci[egrave]res, in which the issuing entity 
is strictly regulated by banking authorities as a credit institution 
and in which the priority of investors' claims is guaranteed as a 
matter of law, differs significantly from the private contractually-
based covered bond regimes found in certain other countries (such as 
the United States).
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    3. CFF is a direct, wholly-owned subsidiary of Cr[eacute]dit 
Foncier de France (``Credit Foncier''), which is licensed and regulated 
under French law as a commercial bank. Applicant states that Credit 
Foncier was the first French issuer of covered bonds and an active 
participant in the covered bond market until 1999, when in connection 
with the adoption of the SFSA Law, Credit Foncier formed CFF and 
transferred its covered bond business to it. CFF states that since its 
formation, it has issued over $147.5 billion in covered bonds in the 
international capital markets.
    4. Applicant represents that the SFSA Law gives the holders of 
CFF's covered bonds the benefit of a statutory priority in right of 
payment (the ``Privilege'') on all assets and cash flows of CFF. 
According to CFF, the Privilege constitutes a legal safeguard for 
holders of covered bonds in that no creditors of a SCF, including the 
French State, can claim cash flows generated by Eligible Assets until 
the SCF's obligations in respect of its covered bonds are discharged in 
full. The SFSA Law establishes a principle of over-collateralization, 
which provides that the total amount of the assets of a SCF must exceed 
the global amount of liabilities benefiting from the Privilege at all 
times, thereby limiting risk exposure. CFF states that in addition to 
the Privilege, as an additional investor protection safeguard, the SFSA 
Law creates important exceptions to the claw-back rules that would 
otherwise apply under the French insolvency laws.
    5. CFF states that, as a licensed credit institution, it is subject 
to extensive legal and regulatory obligations under French banking 
regulations and is supervised by the French Banking Commission 
(``Banking Commission''), a body within the Banque de France. CFF 
further states that it is not only subject to the general regulatory 
supervision applicable to all licensed credit institutions, including 
banks, but also to additional control mechanisms that are specific to 
its status as a SCF. CFF states that it is subject to continuous off-
site monitoring and routine on-site inspections by the Banking 
Commission, which consists of examination of CFF's prudential and 
accounting records, regular contacts with CFF's senior management and 
statutory auditors, and ascertainment that the information disclosed by 
CFF accurately reflects its financial condition. In addition, CFF 
states that as an issuer of listed debt securities sold to the general 
public in France, it is also subject to the rules and regulations of 
the Financial Markets Authority (the ``AMF''), the French financial 
market regulator responsible for ensuring investors' protection.
    6. Applicant represents that under French banking regulations, CFF 
must appoint a specific controller (the ``Specific Controller'') as a 
result of its status as a SCF. The Specific Controller is appointed by 
CFF's management board with the approval of the Banking Commission. CFF 
states that the Specific Controller monitors compliance with the legal 
and regulatory provisions applicable to SCFs, monitors CFF's management 
of its assets and liabilities and ensures that CFF only undertakes 
transactions that are consistent with its specific purpose as a SCF. 
The Specific Controller verifies that the assets held by CFF are 
Eligible Assets and certifies compliance with collateralization 
requirements.
    7. CFF states that it is also subject to special internal control 
procedures. The SFSA Law requires that the asset and liabilities of a 
SCF be managed by a credit institution pursuant to servicing 
agreements. Because of this legal requirement, CFF relies on Credit 
Foncier to operate its business. Credit Foncier, a licensed bank, 
administers CFF in accordance with permanent and periodic control 
procedures that are centralized at the level of Credit Foncier.
    8. CFF proposes to offer and sell in the United States its covered 
bonds and other debt securities that benefit from the Privilege as 
described in the application (collectively, the ``Privileged Debt 
Securities''). CFF states that any such offer and sale shall occur only 
in transactions exempt from registration under the Securities Act of 
1933 (``1933 Act''), including transactions effected as traditional 
private placements with institutional investors or in transactions in 
which the securities may be resold to ``qualified institutional 
buyers'' as contemplated by rule 144A under the 1933 Act. CFF believes 
that investors in its Privileged Debt Securities would have the 
protections provided by the Privilege, the protections provided by the 
French government's regulation of CFF and its operations, and the 
protections of the laws in the United States applicable to securities 
offered and sold to qualified institutional buyers and other 
institutional investors, as well as the antifraud provisions of the 
Securities Exchange Act of 1934. CFF intends to use the proceeds from 
any sale of its securities in the United States as an additional source 
of financing for the housing and public sectors in France and other 
developed countries, including the United States.

Applicant's Legal Analysis

    1. Section 3(a)(1)(C) of the Act defines an investment company to 
include any issuer engaged in the business of investing, reinvesting, 
owning, holding or trading in securities, and that owns or proposes to 
acquire investment securities having a value exceeding 40% of the 
issuer's total assets. Section 3(a)(2) of the Act defines ``investment 
securities'' to include all securities except Government securities, 
securities issued by employees' securities companies, and securities 
issued by majority-owned subsidiaries of the owner which (a) are not 
investment companies, and (b) are not relying on the exclusions from 
the definition of investment company in section 3(c)(1) or 3(c)(7) of 
the Act.
    2. CFF states that a majority of its assets consist of loans, debt 
securities and cash equivalents, and that these assets could be 
considered ``investment securities'' within the meaning of section 
3(a)(2) of the Act. As a result, CFF states that it could be deemed to 
be an ``investment company'' under section 3(a)(1)(C) of the Act.
    3. Section 6(c) of the Act provides, in relevant part, that the 
Commission, by order upon application, may conditionally or 
unconditionally exempt any person, security, or transaction from any 
provision of the Act, if and to the extent necessary or appropriate in 
the public interest and consistent with the protection of investors and 
the purposes fairly intended by the policy and provisions of the Act.
    4. Rule 3a-6 under the Act excludes foreign banks from the 
definition of an investment company under the Act. A ``foreign bank'' 
is defined in the rule to include a banking institution ``engaged 
substantially in commercial banking activity'' which in turn is defined 
to include ``extending commercial and other types of credit, and 
accepting demand and other types of deposits.'' CFF states that while a 
large part of its business activity is to extend commercial credit such 
as mortgage loans and loans to public sector entities and it is subject 
to extensive supervision and regulation by French banking authorities, 
it is not considered a comercial bank under French law. Further, 
Applicant states that as a credit institution licensed as a SCF, it 
cannot accept ``demand and other types of deposits.'' Therefore, CFF 
states that it is not eligible for the exclusion provided by rule 3a-6 
under the Act.

[[Page 37258]]

    5. CFF states that it engages in several banking activities, that 
it is controlled as to financing it can undertake and loans it can 
extend through French banking laws and through oversight and regulation 
implemented by the Banking Commission. CFF asserts that as a SCF, it is 
governed by a legal regime in many respects stricter than the regime 
applicable to commercial banks in France. CFF further states that it 
fulfills a public interest objective of providing financial resources 
for the favored sectors in France and the United States and other 
developed nations, and that its activities do not lend themselves to 
the abuses against which the Act was directed. Therefore, CFF states 
that it satisfies the standards for relief under section 6(c) of the 
Act.

Applicant's Conditions

    Applicant agrees that the order granting the requested relief will 
be subject to the following conditions:
    1. In connection with any offering by Applicant of its Privileged 
Debt Securities in the United States, Applicant will appoint an agent 
to accept service of process in any suit, action or proceeding brought 
on such Privileged Debt Securities and instituted in any State or 
Federal court presiding in the City and County of New York by any such 
holder of any such Privileged Debt Securities. Applicant will expressly 
submit to the jurisdiction of the New York State and United States 
Federal courts presiding in the City and County of New York with 
respect to any such suit, action or proceeding. Applicant will also 
waive the defense of forum non conveniens to the maintenance of any 
such action or proceeding in the New York State or United States 
Federal courts presiding in the City and County of New York. Such 
appointment of an agent to accept service of process and such 
submission to jurisdiction shall be irrevocable until all amounts due 
and to become due in respect of such Privileged Debt Securities have 
been paid. No such submission to jurisdiction or appointment of agent 
for service of process will affect the right, if any, of a holder of 
any such security to bring suit in any court that will have 
jurisdiction over Applicant by virtue of the offer and sale of such 
Privileged Debt Securities or otherwise.
    2. Applicant's activities will conform in all material respects to 
the activities described in the application.
    3. Applicant is regulated as a SCF by the French banking 
authorities, as described in the application.
    4. Applicant will only offer and sell Privileged Debt Securities on 
a private basis in the United States to persons reasonably believed by 
Applicant to be (i) institutional accredited investors as defined in 
paragraphs (1), (2), (3) and (7) of Rule 501(a) under the 1933 Act, 
(ii) any entity in which all of the equity owners come within such 
paragraphs, or (iii) qualified institutional buyers, as defined in Rule 
144A under the 1933 Act.
    5. Applicant will not make public offers or sales of equity or debt 
securities in the United States and will not make offers or sales of 
equity securities on either a public or private basis in the United 
States.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-17892 Filed 7-27-09; 8:45 am]

BILLING CODE 8010-01-P
