|2011/2012 funding volume||€31.4BN/€40BN|
|AUD volume 2011/2012||NIL/NIL (full year/to Jun 30)|
|Issuance % by currency||EUR 67%; USD 25%; Other 8%|
|USD benchmark size||US$2BN|
|EUR benchmark size||€3bn|
|RBA repo eligible?||Yes|
|RBNZ repo eligible?||Yes|
About Caisse d'Amortissement de la Dette Sociale
Caisse d'Amortissement de la Dette Sociale (CADES), also known as the Social Security Debt Repayment Fund, was established by government order in January 1996. This legislation was amended in August 2004 as part of the ongoing reform of France's social insurance system.
CADES's existence is inseparable from efforts to balance the accounts of the French social security system – its mission is to finance and extinguish the debt accumulated by the national social security. The debt includes a deficit of €34.2 billion for 1994-1998 and €49.6 billion for 2002-2007.
The law of 2004 abolished the 2014 deadline for the lifespan of CADES and its mission is now estimated to be completed in 2021. In addition, at the end of 2010 the French parliament passed the Social Security Financing Act for 2011, transferring a maximum of €68 billion of general social security debt accumulated for the period 2009-2011.
At this time CADES was also assigned a new mission: to achieve a satisfactory balance in French retirement plan financing. This will require CADES to assume a maximum debt of €62 billion (but not exceeding €10 billion per year) between 2012 and 2018.
To help CADES achieve these aims, a new organic law was passed extending its life by four extra years. In addition, CADES was endowed with secured additional income:
• 0.28 % of Contribution Sociale Généralisée (to yield an estimated €3.2 billion in 2011).
• 1.3% deduction on capital income (estimated yield of €1.5 billion in 2011).
• €2.1 billion yearly from the Fonds de Réserve des Retraites (FRR – reserve funds for French retirement).
Since 1996 CADES has amortised €59.6 billion of debt. The total social debt transferred is €202.4 billion, while the estimated net liabilities are around €142 billion.
CADES is wholly owned by the French state.
CADES' debt financing relies on both its borrowing power in financial markets and the use of a variety of financial instruments. The repayment of these issues is primarily guaranteed by the proceeds of a mandatory levy on citizens' income plus an annual upfront cash payment. These payments total 76.3% of the expected €15.2 billion of revenues for 2011. The annual cash flow from the FRR totals 13.8%, while the social tax on financial revenues totals 9.9%.
CADES can only invest in bonds issued by the French government or bonds that have an explicit guarantee from the French government. It has no exposure to currency risk.
The financing strategy implemented by CADES since its creation has helped the organisation become a top-grade international issuer. In 2009 CADES raised €35.7 billion (€25.8 billion mid- and long-dated) and in 2010 €13.8 billion was raised (€11.1 billion mid- and long-dated). In 2011 CADES issued €31.4 billion of mid- and long-term debt, €3.8 billion of puttable MTNs plus €37.8 billion of short-term paper, completing its largest funding programme ever (€73 billion).
For 2012 CADES's financing need is around €40 billion. By the end of July the agency had already issued €24 billion of mid- and long-term bonds (with a target of €28 billion for the year).
Outstanding debt is primarily denominated in euros (67%) and USD (25%), most done in benchmark format. AUD represents a quarter of the remaining 8%. Other currencies of issuance include CHF, JPY and GBP, issued in a combination of public bonds, private placements and MTNs.
AUD and NZD activity
CADES has raised A$2.5 billion in the Kangaroo market. While it was first regarded as an arbitrage market, this is now considered by CADES to be a strategic market – a way of diversifying the investor base and providing new sources of funding. After being away from the AUD market for few years, CADES is very likely to issue at least one deal in 2012. CADES has also been active in the AUD MTN and Uridashi markets.
CADES has not yet issued in the Kauri bond market.
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