On 3 September 2020, Morocco’s Official Journal published Decree no. 1786-20 of 21 kaada 1441 (13 July 2020) of the Moroccan Ministry of the Economy, Finance and Reform of the Administration (the “Decree”), setting out the procedure by which Moroccan securitisation vehicles – fonds de placement collectifs en titrisation (FPCTs) – can carry out “synthetic” securitisation transactions.
The Decree was issued in application of Article 1 of Law no. 33-06 relating to the securitisation of assets (the “Securitisation Law”), which gave FPCTs the option of guaranteeing credit and insurance risks. However, credit risk hedging operations have so far been impossible in the absence of a decree setting out the law’s implementing provisions. The Decree therefore completes the set of rules and opens up the Moroccan synthetic securitisation market.
As a reminder, in a standard securitisation, the FPCT invests in or acquires eligible assets, either permanently or temporarily, from one or more originators. Unlike standard securitisation, synthetic securitisation does not involve the transfer of ownership of assets from an originator to an FPCT. It only transfers the credit or insurance risk associated with those assets to the FPCT. The main advantage of synthetic securitisation is that it allows the originator to transfer credit or insurance risk while keeping an asset on its balance sheet (except after the occurrence of certain events), when that asset is not transferable or when the originator does not wish to proceed with the transfer (for commercial or management reasons).
The new legal framework for synthetic securitisation in Morocco
The Decree first defines the risks that can be guaranteed by an FPCT. Taking a more restrictive approach than the Securitisation Law (which also refers to insurance risks), Article 1 of the Decree describes those risks as being any risk of delay or default in the payment of commitments by a debtor to one or more originators.
The originators to whom an FPCT can offer credit risk hedging are listed exhaustively in the Decree (Article 2). They are credit institutions or similar organisations having their registered office in Morocco or abroad, the Caisse de Dépôt et de Gestion (deposits and management fund), the SNGFE (national corporate guarantee and financing company), international financial institutions and any foreign cooperation agency (provided they are authorised by the Moroccan government to carry out financing transactions), micro-credit associations and public institutions and companies.
The FPCT must use one of the hedging instruments specified in the Decree, namely a financial guarantee or a forward financial instrument defined in Article 3 of Law no. 42-12 relating to the futures market in financial instruments (credit derivatives). It is unfortunate that the Decree did not explicitly authorise the use of other types of hedging instruments, such as deposits assigned as collateral.
The Decree also sets out the conditions under which an FPCT can hedge itself for the credit risk guarantees it has granted:
- the FPCT hedges its exposures by issuing securities and/or subscribing to financial guarantees or financial futures;
- these hedging instruments can only be granted by certain institutions listed in the Decree (Article 5): the State, international financial institutions and the aforementioned foreign cooperation agencies, credit institutions and similar organisations having their registered office in Morocco or abroad (under certain conditions), the Caisse de Dépôt et de Gestion, the SNGFE and insurance and reinsurance companies.
Articles 6 and 7 of the Decree stipulate the amount of credit risk guarantee granted by an FPCT and the amount of hedging instruments the FPCT benefits from. The amount of risk guarantees granted by an FPCT may not exceed the total amount of securities issued, increased by the value of any hedging instruments from which it benefits. Furthermore, the amount of hedging instruments used to hedge a guarantee transaction may not exceed 50% of the amount of the credit risk guarantee covered by that FPCT. However, that percentage may be increased to 80% if (i) the hedging instruments are granted by international financial institutions and foreign cooperation agencies authorised to carry out financing transactions and if (ii) the total amount of hedging instruments granted by the State, international financial institutions and foreign cooperation agencies authorised to carry out financing transactions does not exceed 50% of the amount of the credit risk guarantee.
Finally, Article 4 of the Decree draws up a list supplementing the provisions of Article 32 of the Securitisation Law, concerning the indications to be included in the management regulations of an FPCT that guarantees credit risks.
The Decree should make it possible to launch a number of transactions and boost the Moroccan securitisation market. The Moroccan market benefits from very comprehensive securitisation rules, covering a wide range of possibilities. Provisions now remain to be adopted to define and implement the procedure allowing an FPCT to cover insurance risks or grant “loans to one or more originators to finance the acquisition or holding of eligible assets guaranteed by collateral on those assets,” according to the promising programme set out in Article 1 of the Securitisation Law.
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