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French Agency Borrowing Set To Mushroom

A French government agency has a massive funding requirement of EUR39 billion over the next 12 months, which will turn it into one of the most-frequent and largest of European borrowers.

A French government agency has a massive funding requirement of €39 billion over the next 12 months, which will turn it into one of the most-frequent and largest of European borrowers. Caisse d'Amortissement de la Dette Sociale (CADES), or the Welfare Debt Repayment Fund, was set up in 1996 to refinance the country's national debt generated by chronic overspending on an ever-burgeoning social security system, which will only have more demands made on it from an aging population going forward.

CADES plans to sell benchmark transactions of euro, sterling and dollar denominated bonds to fill the gap, said Patrice Ract Madoux, chairman, along with inflation-linked notes. This catapults CADES into the same league as supra-sovereign issuers such as European Investment Bank and Kreditanstalt für Wiederaufbau and tops the anticipated funding requirements of sovereigns such as Spain and the Netherlands, at €38 billion and €32 billion respectively. It also dwarfs CADES's issuance in 2002 and 2003, which didn't exceed €5 billion in either year.

CADES intends to sell at least €3 billion in bonds by early October, depending on market conditions and investor demand, said Christophe Frankel, cfo. "Given the recent passing of Act 2004-810, CADES will no longer be dissolved in 2014, so we are now in a position to issue bonds with maturities beyond 10 years," Frankel commented, although he said it has not decided where on the curve to issue. He said the agency would base the decision on investor demand and noted insurance companies typically want 10- or 15-year maturities while private investors favor 3-to-7 year bonds.

CADES has not yet selected underwriters for the deal. UBS, BNP Paribas and J.P. Morgan were leads on CADES's €3 billion issue in June, with another 10 banks as co-leads. Ract Madoux pointed out that a €39 billion program provides a lot of opportunities to be lead underwriter.

A further €2 billion of inflation-linked notes should be issued by CADES before the end of the year, according to Frankel. All in all, €12 billion of Euro-denominated bonds could be issued in the first nine months of 2005 if the current debt structure of CADES is to be maintained, in which Eurobonds constitute 39% of outstanding instruments.

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