Caffil attracted €4.5bn of demand to the first covered bond with use of proceeds related to the Covid-19 crisis today (Tuesday), a €1bn five year social bond that priced with the tightest spread and first negative yield since before market volatility peaked in the week of 9 March.

SSA issuers have since 11 March launched a growing variety of Covid-19 crisis-related bonds, either under social bond or specific frameworks, with proceeds earmarked for tackling the societal and economic impacts of the pandemic, and other types of issuers subsequently following suit. Caisse Française de Financement Local (Caffil), the covered bond issuer of the SFIL group, is the first to do so in the covered bond market, with the first green or social covered bond since 29 January.

Today’s deal was issued under the SFIL group’s existing social framework, which was set up to exclusively finance and refinance loans to French public hospitals and inaugurated in February 2019. The hospitals are playing a key role in fighting the pandemic crisis and the SFIL group expects a large share of this year’s lending to them to be directly related Covid-19.

After announcing the mandate this (Tuesday) morning, leads Barclays, BNP Paribas, ING, NatWest and SG went out with guidance of the mid-swaps plus 28bp area for a five year euro benchmark. After initially reporting books over €1.5bn, and then over €3bn, the leads revised guidance to 23bp +/-1bp, will price in range, and the spread was ultimately set at 22bp, on the back of around €4.5bn of demand, and the size at €1bn.

A syndicate banker away from the leads said the transaction succeeded in building upon confidence engendered by the performance of a €1.25bn seven year CRH transaction on Thursday, which was priced at 31bp over. He noted that Caffil had now set a reference point some 9bp tighter and moved some 6bp from guidance to pricing, 1bp more than the 5bp of its compatriot on Thursday.

“Before Easter, every deal had to print on top of the previous,” he said, “but since CFF, CRH and now Caffil, we’ve seen a pattern that you print a little tighter and you perform in secondary, and this deal re-affirms that.

“Asset managers have come back in force in the books,” he added, “and even leveraged accounts and treasuries, so it’s a very, very strong trade and signal for the market going forward.”

He added that whereas at the beginning of the Covid-19 pandemic, the outcome of transactions was highly dependent upon the prevailing market backdrop, that is now less relevant, with deals apparently succeeding on their own merit.

Syndicate bankers put fair value at around 22bp-23bp based on Caffil January 2025, June 2025 and September 2025 paper all trading at 21bp, mid, as well as the most recent CRH 2027 and Crédit Mutuel 2025 transactions at 24bp and 23bp, respectively.

“Depending on how you look at the comparables, it’s zero to 1bp of new issue premium,” said a syndicate banker at one of the leads, “meaning this is the first of the French trades to print at around flat to fair value at mid levels.

“This is really a testament to how far the market has come in the past few weeks,” he added, “because now, at least for most of the top names in France, the Netherlands and Germany, really good trades are possible, although some may still not be entirely confident with the wider levels.”

Caffil’s deal is the first negative-yielding euro benchmark covered bond since the onset of the Covid-19 pandemic in Europe, and another lead banker said the innovative social aspect of the bond had compensated for any potential yield concerns among investors, even if these were limited.

“In a negative-yielding or short-dated transaction such as this, you wouldn’t typically expect as much asset management interest as we had,” he said, “given they’re usually put off by the levels, but in this case the social aspect made up for this.

“This demonstrates the diversification benefit of social bonds, but also highlights the health of the covered bond market versus a month ago, as we have continued to grind tighter in spreads and lower in yield, but have also gotten bigger and bigger order books.”

Today’s transaction is the seventh CBPP3-eligible euro benchmark in a row to come from France, following deals from Axa Banque Europe SCF, BPCE SFH, Crédit Agricole Home Loan SFH, Crédit Mutuel Home Loan SFH, CFF and CRH since 19 March.

Photo: Hôpital Lariboisière, Paris; Credit: Reinhardhauke/Wikimedia Commons