Caffil seeks private placement ‘dynamism’ in social bond first

Caffil is posting levels for social bonds in private placement format, in what is understood to be a first for a covered bond issuer, with its funding team citing investor interest in such product, which it hopes will add “dynamism” to its MTN issuance at the long end of the curve.

Caisse Française de Financement Local (Caffil), part of the SFIL group, has previously issued benchmark covered bonds in green and social formats, with the latter refinancing loans to French public sector hospitals.

While some green and social covered bond private placements have been executed before, the French issuer is understood to be the first to be showing levels on an ongoing basis.

“This is really something that has been driven by interest from investors,” said Olivier Eudes, head of market activities at SFIL. “Our initial focus was only on benchmark issuance under social bond format, but we see a lot of interest from investors for private placements under ESG format.”

Some green and social bond issuers have preferred to reserve assets eligible as use of proceeds for benchmark issuance, but Caffil has sufficient volumes for both benchmarks and private placements, according to Ralf Berninger, head of investor relations and sustainability at SFIL, while its portfolio approach to reporting obviates the need for individual reporting for private placements.

“Proposing social bond private placements fits in very well with the way we set up our social bond framework,” he said. “Private placements will be included in the yearly reporting alongside our benchmark transactions.”

Private placements have provided some 20% of around €41bn of new funding raised by Caffil it came into being in 2013, with an average maturity of around 15 years – in line with its long dated assets. However, as for other covered bond issuers, private placement activity was subdued in 2020, with Caffil only raising around €100m in such issuance.

“In the low yield environment, investors have more interest in callable structures or ESG products,” Gonzague Veillas, head of funding and treasury, told Sustainabonds, “so we felt this was the time to put some dynamism into our private placement activity with this new funding tool.”

The issuer is now providing levels for 10 to 20 year plain vanilla private placements in social bond format alongside levels for structured, callable or multi-callable notes.

“This shows to the market that ESG is spreading all through our activities, including private placements,” added Veillas, “which is a key activity for Caffil to reach long duration in its funding.”

The French issuer launched the first covered bond to be linked to the response to the Covid-19 pandemic, a €1bn five year deal in April 2020, and French government plans to boost healthcare investment by €6bn as well as take over €13bn of debt from public hospitals is expected to allow for greater new loan production for SFIL than its typical amount of around €500m per year.

“A huge investment plan for French public hospitals has been announced in the context of the pandemic,” said Sami Gotrane, head of treasury and financial markets. “Our social bond programme will contribute to financing these investments.”

Caffil expects to issue between €4bn and €5bn this year and kickstarted its funding programme, away from its green and social issuance, 11 January, when it issued the second euro benchmark of the year, a a €1.5bn long 10 year deal.

ABN AMRO