Compagnie de Financement Foncier

Commitment on Derivatives in order to maintain the then current rating of the obligations foncières by S&P

In accordance with the legal framework applicable to sociétés de crédit foncier, Compagnie de Financement Foncier uses micro- and macro-interests and currency hedging operations to limit its exposure to interest rate variations and currency fluctuations.  As part of this process, Compagnie de Financement Foncier has entered into derivatives agreements with a number of derivatives banking counterparties. Although the documentation policy of the Company for these agreement typically provides for asymmetrical collateralization arrangements whereby the derivatives counterparties will post collateral to the benefit of Compagnie de Financement Foncier while the Compagnie de Financement Foncier will not, the Compagnie de Financement Foncier is nonetheless exposed to the risk of default of its derivatives counterparties.

Such hedging agreements are entered into with derivatives counterparties having sufficient level of ratings on terms that comply with the applicable public methodologies criteria of the rating agencies rating the obligations foncières issued by Compagnie de Financement Foncier commensurate with the then applicable rating of such obligations foncières, provided that, with respect to the « Counterparty Risk Framework Methodology And Assumptions » published by Standard & Poor’s on 29 November 2012 to be read in conjunction with the « Covered Bonds Counterparty And Supporting Obligations Methodology And Assumptions » published on 31 May 2012 (the « New S&P Criteria« ):

(i)            either the existing derivatives agreements entered by the Compagnie de Financement Foncier were amended to comply with the New S&P Criteria (with or without variants features outlined in the New S&P Criteria) or comply with former S&P criteria applicable to covered bonds, or

(ii)           with respect to those which are not referred to in paragraph (i) or with respect to those which are referred to in paragraph (i) above but for which no replacement was found within the applicable remedy period (if any), and if the notional amount of all such derivatives exceeds 5% of the then outstanding amount of the debts benefiting from the privilege of Article L.515-19 of Code monétaire et financier issued by Compagnie de Financement Foncier: in the event the BPCE’s short term issuer credit rating become rated A-2 or below, Compagnie de Financement Foncier undertakes to, within 60 calendar days as from the date of such downgrading event and at its own costs, find replacement derivatives and/or amend such derivatives (in order for them to become part of the paragraph (i) above, in the way commensurated to the then current rating of its obligations foncières or, as the case may be, in order to incorporate a subordination clause of the termination costs due by the issuer where the counterparty is defaulting party or affected party) so that, after such replacements and/or amendments, the notional amount of all such derivatives becomes less than 5% of the then outstanding amount of the debts benefiting from the privilege of Article L.515-19 of Code monétaire et financierissued by Compagnie de Financement Foncier;

(iii)          in any event, as long as the obligations foncières of Compagnie de Financement Foncier are rated by S&P, if any of such derivatives agreement referred to in paragraph (i) or (ii) above includes an additional termination event that gives Compagnie de Financement Foncier an option to terminate if there is no mutually acceptable replacement derivatives counterparty, and the notional amount of all such derivatives exceeds 5% of the then outstanding amount of the obligations foncières issued by Compagnie de Financement Foncier, Compagnie de Financement Foncier undertakes to, within 60 calendar days as from the date on which the applicable rating trigger event ocured:

• find a replacement, or
• take over the derivative obligation if suitably rated, or
• increase the overcollateralization to address unhedged risk.

It is provided that should the New S&P Criteria be modified, superseded or revoked, the above undertakings will be modified, superseded or revoked as applicable.