Caffil wrapped up the Sfil group’s 2025 funding programme last week, adopting a pragmatic approach to successfully navigate French political developments to attract some €4.2bn of orders to a €1.25bn long seven year covered bond, Gonzague Veillas at Sfil told The CBR.

According to Gonzague Veillas, head of funding and treasury at Caisse Française de Financement Local (Caffil) parent Sfil, said the window for the new issue on Monday of last week (20 October) materialised after it became clear the previous Wednesday (15 October) that reappointed French prime minister Sébastien Lecornu would survive impending no confidence votes.

“We have been very pragmatic,” he told The Covered Bond Report, “meaning that we have been paying close attention to market developments around French political risk. On the Wednesday, we clearly saw strong relief in OATs once the market was convinced that the risk of a dissolution was fading away, which signalled to us that a window could open for a Caffil trade.

“It was something that would give comfort to our investors to come into a French covered bond – in my view, it does not have any impact on pricing, but simply provide the context for a more positive reception for our trade.”

S&P then downgraded France from AA- to A+ late Friday (17 October). However, the move only led to the deal being announced half an hour later on the Monday morning, as Caffil and its leads monitored the market’s reaction.

“The downgrade itself was not a surprise,” said Veillas, “just the timing. But what we clearly saw on the morning of the 20th was that the market had already been pricing it in – we saw a 2bp widening of OATs versus Bunds and swaps, but that quickly stabilised and reversed in the course of the morning.

“Caffil – as a covered bond issuer – follows a different market dynamic than French sovereign risk,” he added.

Leads BBVA, Citi, HSBC, LBBW, Natixis and SG opened books around 9.30am CET with guidance of the mid-swaps plus 65bp area for a euro benchmark-sized May 2033 transaction, expected ratings Aaa/AAA (Moody’s/DBRS). After around an hour and 10 minutes, the leads reported books above €1.6bn, including €275m of joint lead manager interest, and after around an hour and three-quarters, the spread was fixed at 61bp, with the size still to be determined, on the back of books above €2.45bn. The size was then set at €1.25bn and the final book was around €4.2bn, including €290m of JLM interest and 105 accounts.

“We are very happy with the transaction,” said Veillas. “Clearly the objective was to complete our 2025 funding programme in a very positive tone, and this was achieved, with the strong response from investors and high level of oversubscription.”

The new issue premium was put at 3bp – among pre-announcement comparables circulated by the leads, Caffil’s July 2033s were quoted at 58bp, mid. The guidance offered a pick-up of 7bp over OATs, while the final pricing was 1bp over.

Investment managers were allocated 40%, banks 37%, central banks and official institutions 16%, and insurance companies 7%. Germany and Austria took 20%, France 15%, the Nordics 13%, the UK 12%, Italy 10%, Iberia 8%, Middle East and Africa 8%, the Benelux 6%, Asia 3%, central Europe 2%, Switzerland 2%, and others 1%.

The new issue is Caffil’s fifth benchmark covered bond of the year. New euro benchmark covered bonds have contributed €4.75bn of Caffil’s €6.1bn total for the year, with the balance made up of private placements and taps.

“Our investors and dealers know that Caffil is a regular issuer in tap format,” said Veillas, “so when there is a need for liquidity, we have the capacity to tap.

“What we have done for the first time this year,” he added, “is to tap social and green bonds.”

Caffil tapped green and social benchmarks it issued this year for €250m and €150m, respectively, in September and October, for example. The issuer has also been offering private placements in green format. Veillas noted that the issuer has delivered on its commitment to raising at least one-third of its volumes in green and social formats.

In parallel, the group has been expanding the scope of green and social use of proceeds of its issuance.

“In addition to the hospitals we initially financed on the social side and local government investments on the green side, we now include export projects,” said Ralf Berninger, head of investor relations and sustainability at Sfil. “On the green side, for example, we have financed investments in renewable energy and also a very big public transportation project in Africa, and on the social side investments including electricity grids in Africa.”

With €2.5bn of issuance from Sfil in 2025, the group’s total funding programme for the year has been €8.6bn. Next year’s funding targets are set to be released soon.

“I don’t expect any major changes in the total,” said Veillas. “We will remain a regular issuer overall, and especially Caffil in the euro covered bond market with similar volumes.”

He noted that while last week’s transaction completes the group’s 2025 long term funding programme, Caffil will consider non-benchmark pre-financing opportunities – i.e. private placements and taps – between now and year-end.