Caffil parent SFIL sold a Eu1bn eight year debut senior unsecured issue yesterday (Tuesday) to diversify the agency’s sources of funding, but covered bond issuance is unaffected by the move and will remain its main financing instrument, according to an official at the issuer.

Covered bonds issued by Caisse Française de Financement Local (Caffil) have hitherto constituted the main capital markets financing of SFIL, with around Eu53bn of obligations foncières outstanding, more than Eu18bn of which has been issued since 2013.

SFIL – which supports the French local public sector and export finance – has now established its own Eu5bn EMTN programme and yesterday’s benchmark is intended to be the first of regular appearances in the agency market. According to Sami Gotrane, financial markets manager at SFIL, the issuer plans to sell one or two benchmarks per year across euros and dollars, and build a curve from three to 10 years.

As part of its funding mix, SFIL has also had liquidity lines totalling Eu13.75bn available from shareholders (alongside the French government) Caisse des Dépôts et Consignations (CDC) (Eu12.5bn) and La Banque Postale (Eu1.25bn), with the cost of the facilities set by the European Commission and based on an average funding cost for French banks. As of 30 June SFIL had drawn down Eu7.7bn of these facilities and Gotrane said that the proceeds of the new SFIL issue will be used to repay part of the drawings from the CDC line and future SFIL issuance will reduce drawings further.

“This exercise allowed us to achieve a significant saving versus our loan from CDC,” he said. “The liquidity line will remain in place, but it will be more of a back-up facility and a complementary tool alongside the EMTN programme. We have used this liquidity line less and less since 2013.”

Covered bond issuance volumes from Caffil will therefore be unaffected by the increasing presence of SFIL in the capital markets.

“The fact that SFIL is issuing bonds directly is changing nothing in terms of Caffil’s issuance,” said Gotrane. “It’s mainly used to finance the overcollateralisation of the vehicle. It has nothing to do with any substitution between covered bonds and unsecured funding.

“Caffil will remain a very large issuer of bonds in the coming years, with probably around Eu5bn-Eu7bn annually. It will remain by far our largest source of funding.”

Yesterday’s Eu1bn eight year debut, rated Aa3/AA/AA- and LCR Level 1-eligible, was priced flat to mid-swaps and 21bp over OATs, and attracted Eu2.2bn of demand from over 80 accounts.

“SFIL’s issuance does not cannibalise Caffil’s covered bond issuance because more than half of the investors in the order book do not buy covered bonds,” said Gotrane.

Photo: SFIL offices