Covered Bond: Caffil’s €1bn five-year Covid-19 bond

IFR Awards 2020
2 min read
Malicka Danna Sielinou

Health crisis

Caisse Francaise de Financement Local picked up the baton from the SSA sector in late April by becoming the first European financial institution to issue a Covid-19 bond.

Until the French institution’s deal, issuance of bonds dedicated to raising funds to combat the health and economic crisis had mostly come from SSAs.

But the €1bn five-year bond showed that the burden could be spread with all proceeds earmarked for the financing of loans to French public hospitals originated by public development bank SFIL.

Moreover, while it wasn’t the first covered bond after the pandemic outbreak, it restored confidence to a market that had been lacking in conviction.

The structure was chosen to adapt to the prevailing circumstances.

“Caffil usually focuses on long-dated maturities but here we demonstrated our capacity to adapt to investors’ needs by going short, so that they could get massively involved,” said Gonzague Veillas, head of treasury and funding at Caffil.

The strategy paid off as orders reached more than €4.5bn from 130 accounts. That enabled leads to price at 22bp over swaps, 6bp inside initial price thoughts.

The final level suggested a new issue concession of 1bp-2bp, a premium notably lower than other issuers had paid in preceding weeks.

The bond was printed with a coupon of 0.01%, the lowest the issuer had ever paid on a benchmark transaction, and at a yield of minus 0.036%, the first negative-yielding covered bond since the pandemic had triggered a global sell-off.

Bankers at the time said it was an impressive achievement by Caffil to print so tightly, especially for a name that trades tightly anyway.

The scale of demand was mainly attributed to Caffil’s social label, which tapped into investors’ desire for ESG assets.

ESG-dedicated investors took 25% of the allocation.

“Throughout 2020, we have seen strong developments in the social bond space, but this transaction is unique because it was fully dedicated to a very specific problem we were facing at the time,” said Olivier Eudes, head of market activities at Caffil.

“With the vast majority of Covid-19 patients in France being treated within public hospitals, it was key that we succeeded in securing the right level of funding for the massive investment plan that was put in place to strengthen the public hospital system,” he said.

Barclays, BNP Paribas, ING, NatWest Markets and Societe Generalewere the leads.

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