Caffil successfully wrapped up its 2023 issuance on Monday by selling a €500m long five year social covered bond that paid a new issue premium of just 3bp, with the issuer citing the format as helping improve execution as well as underlining its commitment to the ESG market.

The new issue comes just over a month after Caisse Française de Financement Local (Caffil) sold a €750m long five year (January 2029) green covered bond. But its last social covered bond was in May 2022, a €500m 12 year.

Gonzague Veillas, head of funding and treasury at Caffil parent SFIL, said there were two rationales for new green and social bonds.

“Firstly, we want to upsize the share of ESG in our funding programme to show our dedication to this market,” he said. “So far this year we hadn’t done so much ESG – only one private placement in social format in the first semester – so we wanted to use our frameworks further before year-end.

“And secondly, we feel that ESG formats – which are very rare in the covered bond market – are good to use when the market context is quite challenging, which is true of the covered bond market at this time. We wanted to finish our 2023 funding programme with a very solid transaction and the social format here clearly makes a positive contribution to the execution of the transaction.”

Leads BBVA, BNP Paribas, Deutsche, LBBW and SG opened books on Monday morning with guidance of the mid-swaps plus 34bp area for the €500m no-grow March 2029 social obligations foncières, expected ratings Aaa/AA+/AAA (Moody’s, S&P, DBRS). After around an hour and a half, they reported books above €1bn, excluding joint lead manager interest, and after around two-and-a-half hours, they set the spread at 34bp on the back of books above €1.25bn, including €45m of JLM interest. The final book was above €1.34bn.

With its recent January 2029 green issue quoted at 31bp, mid, the new issue premium for the new March 2029 social issue was put at just 3bp.

“We are happy to terminate this year with a very successful social bond transaction,” said Veillas. “In this current market context where the new issue concessions are more in the context of 5bp-6bp, that is clearly quite a good outcome.

“We had a very good level of oversubscription, with strong participation of central banks/official institutions after banks, which is natural given the maturity.”

Banks were allocated 53%, central banks and official institutions 26%, asset managers 16%, and insurance companies 5%. Germany and Austria took 40%, France 18%, the Benelux 14%, the Nordics 8%, the Middle East and Africa 7%, Ireland 4%, Italy 3%, the UK 2%, Asia 2%, and others 2%.

The SFIL group established a new and broad green, social and sustainability framework in October 2022 – inaugurated with a green bond the following month – but this week’s issuance was off its more established social note framework dedicated to healthcare.

“This has been our fifth social bond benchmark financing the public hospital sector,” said Ralf Berninger, head of investor relations and sustainability at SFIL. “For next year, we also plan to start issuing social bonds to finance social investments by French local authorities, for example in the field of public education.”

Caffil plans to issue €4bn-€5.5bn of covered bonds next year, with ESG formats making an even greater contribution.

“This transaction completes our 2023 funding programme,” said Olivier Eudes, head of ALM and financial markets at SFIL. “Looking ahead, we plan to increase our green and social issuance, with a target of 25% of total issuance under green or social bond format for next year.”