Social Bond: Caffil’s €1bn 10-year covered bond

IFR Awards 2019
3 min read
Tessa Walsh

Healthcare first for social

Caisse Francaise de Financement Local in February issued the first social covered bond and the first covered bond fully dedicated to financing public healthcare in a groundbreaking deal that offered diversification to the social and covered bond markets, and set a benchmark for healthcare bonds.

The €1bn February 2029 bonds are the first to be 100% allocated to financing hospitals, the first French sustainable covered bonds, and the first social bonds to be raised by a French public sector issuer.

“We’ve seen covered bonds in the green and sustainable space, but never as a social bond. There are not many trades financing hospitals on the social side, but I think they will come,” said Tanguy Claquin, head of sustainable banking at Credit Agricole.

Social bonds fund the provision of basic goods and services and typically focus on SME financing for job creation, social housing and microfinance.

The deal was deemed to be social as France’s public hospitals offer equal access to all regardless of income, but the trade also set a broader benchmark as nearly all countries have healthcare services for the poor.

“When hospitals are taking care of everyone independently from their financial needs, it is undoubtedly social,” Claquin said.

Caffil finances French public investment by local authorities and is a regular issuer of covered bonds. The deal financed loans to more than 1,000 public hospitals originated by parent SFIL Group, for healthcare, research and training.

Credit Agricole and Societe Generale were structuring advisers on the deal, and leads alongside BayernLB, BNP Paribas and ING. The credit process involved analysing each hospital to give priority to investment in areas that need extra healthcare facilities.

“This is an important step in ESG issuance and we are pleased with our debut social issue. Public hospitals have a big social role and we did the analysis to measure social benefits when they lend,” said Ralf Berninger, head of investor relations at SFIL said.

The social angle of Caffil’s deal brought extra demand and one of its biggest books for a single-tranche covered bond. The deal exceeded its €1bn target in 25 minutes and gathered a final book of more than €2.6bn from 110 institutions, a third of which were sustainable investors.

The spread was fixed at 11bp, 0.5bp above Caffil’s conventional covered bond curve, which was seen as relatively aggressive for a social or green debut but justified by the size of the book. The deal performed well in secondary.

The bond has an external assessment by Sustainalytics and is the first to be issued under SFIL’s Social Note Framework of September 2018, which will fund €400m of hospital lending per year.

Caffil also issued its first benchmark €750m 10-year covered green bond in November, and plans to issue one or two social or green deals per year.

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