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Capital Markets

Covered bonds: Veolia’s obligations foncières

Is this the start of a new funding route for corporates?

Veolia Environnement, the French utility, waste management and transport company, has gained permission from the Comité des Établissements de Crédit et des Entreprises d’Investissement (credit institutions and investment firms committee – CECEI) to set up a société de crédit foncier (SCF), the vehicle used under French law to issue obligations foncières.

Since 1999 a modest number of French financial institutions have used the obligation foncier structure to access the European covered bond market. But there is no precedent for corporates using this market. The process of setting up a SCF was "an extremely complicated procedure", according to a spokesperson from Veolia. "When the issue was first raised with the financial authorities, there was puzzlement, followed by a series of very interesting exchanges."

Some might suspect Veolia of formulating the issue purely for novelty’s sake. Sylvain de Forges, Veolia’s head of financial operations, became known during his time in France’s finance ministry for almost incessant innovation. However, it might just be that new accounting frameworks have allowed Veolia to reclassify its assets to make the issue of obligations foncières more plausible.

Veolia plans to use public sector assets as collateral. For example, contracts to provide water treatment services could be applicable, so long as they are of a long enough term.

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