It just keeps going

IFR Triple A Borrowers 2009
4 min read

Caisse d'Amortissement de la Dette Sociale, the Triple A rated French social security agency, confirmed that it is aiming to raise €33bn of financing in 2009 following the assumption of an additional €27bn of debt from central government this year. Despite increases to its funding programme, Cades has responded in a pragmatic way to this news as it set about its increased funding. Mike Winfield reports.

Cades was founded in 1996 as an integral part of the French central government. Its remit was to amortise social debt until its objective was achieved. According to the original plan the issuer should have ceased to exist in January this year, although additional transfers have extended the operational life of Cades. The latest additional debt transfer is likely to see Cades in operation until 2021, based on current projections. In order to finance its operations Cades has raised both conventional and index-linked debt. It operates in the euro and US dollar markets, as well as issueing in other currencies such as sterling and both Australian and Canadian dollars.

"Cades, as one of the larger SSA issuers and as the manager of French public social debt which is part of the central government, will continue to reference the new issue levels of its peers such as EIB and KfW", said Patrice Ract Madoux, its chairman, recently. The exact relationship is, however, variable: the spread between these issuers is impacted by the amounts of debt they each have to raise.

When Cades announced a reduced funding requirement some years ago the spread between its outstanding debt and that of its peers contracted, which was logical given the reduced issuance prospects. This year, following the announcement in January that it will assume further debt, the spread differential has remained relatively stable. This can, in part, be attributed to the higher supply needs of other issuers such as the EIB, KfW and SFEF relative to Cades. As a result one London based syndicate manager suggested that "Cades can't really be compared to these other agency issuers as the frequency of their issuance creates differences in the liquidity of their secondary debt distorting direct comparison."

Last year Cades' funding programme was €8.6bn, which consisted of €3bn raised through euro benchmarks and €3.5bn in US dollars and Australian dollar benchmark deals. When Cades announced the increase in its funding it presented two scenarios through which this might be achieved. The amount of short-term financing was the main variable between the two plans. Issuance in this maturity can vary between €6.3bn and €18.3bn, depending on its ability to raise medium to longer-dated capital this year, said Philippe Noel, head of capital markets. As a result, the amount of benchmark bond issuance is likely to be between €9bn–€15bn for new euro benchmark trades and €2.4bn–€3.9bn equivalent for US dollar benchmark deals this year. The balance will be raised through taps of existing deals – something it has not done in the past and which could amount to €1bn–€2bn – and through other currency and inflation-linked bond issuance.

By the end of the first quarter Cades had completed €8.2bn of its funding needs after selling its largest two-year Eurodollar deal, a US$2.25bn April 2011 trade at mid-swaps plus 45bp. As with its previous two-year deal in February, which was priced at mid-swaps plus 30bp, Cades was able to maximise the benefit of the euro/US dollar basis swap which was worth between 45bp and 50bp for these deals.

When Cades sold its €2bn 2.625% April 2012 deal in January it achieved a mid-swaps plus 20bp pricing level. "The ability of other borrowers to access the 15-year sector of the market might be seen as a helpful development as it may enable us to consider the option of issuing longer," Noel said at the time, underscoring the issuer's intention to move to a longer-dated issuance profile when market conditions permitted.

By February Cades was able to add €900m to its outstanding €1.5bn 1.85% inflation-linked July 2019 issue at 58bp over the reference 1% OATi July 2017 – the largest increase ever done by Cades for a bond indexed to French inflation. Subsequently, there has been a €550m tap of the 4% October 2019 deal at mid-swaps plus 58bp, bringing the total outstanding to €4.1bn. Cades also added €650m to its 4.375% October 2021 deal at mid-swaps plus 63bp in March.