CADES Info no. 9 (July 2003)

Patrice Ract Madoux
Président de la CADES

Newsletter
in PDF format
(386 Kb)

EDITORIAL
In 2002, and for the seventh year in a row, CADES fulfilled its core mission, redeeming mature debt and meeting scheduled payments to the government. On December 31, 2002, 38.5 billion euros remained outstanding and payable by January 31,2014, out of the 52.7 billion euros transferred to the agency when it was founded in 1996 and again in 1998. On the basis of our forecasts, and barring any unforeseen changes in our cost or revenue base, this debt will be fully redeemed within the timeframe set forth in government order 1996 and subsequently confirmed by legislation.
CADES is adhering to the schedule for repaying the accumulated social security debt it has assumed, and is maintaining the financial ratios required to carry out its mission. Indeed, both our status as an issuer of recognized quality and our reputation for discipline and professionalism - which allow us to raise funds on practically equal footing with government issuers - depend on this. By maintaining these ratios, CADES has earned the highest ratings from international agencies, and today ranks among Europe 's top five non-governmental issuers.
In seven years, CADES has earned a solid reputation for discipline, disclosure and expertise in paying down social security debt. We have also acquired solid credentials as an issuer, giving us access to new resources in the international financial markets under particularly attractive conditions.

Results align with projections

In line with forecasts, CRDS revenues totaled 4.645 billion euros in 2002.Interest expense decreased by 8.14%, from 1.560 billion to 1.433 billion, reflecting the excellent market conditions CADES enjoys as an AAA-rated issuer, its well-aligned issuance strategy, and the reduction in its total debt.
As announced last year, CADES pursued the planned divestment of real estate transferred to the agency, selling 22 of the 33 properties earmarked for disposal for a total of € 184 million, generating a capital gain of € 40 million.The program will continue throughout 2003.
These factors, combined with management discipline, enabled CADES to generate a gain of € 227 million, despite a larger payment to the French government (€ 3 billion in lieu of € 1.852 billion) authorized under the 2002 Finance Act.This gain will be credited to outstanding debt.
The issuance program announced at the beginning of the year was completed as planned.The success of the 2002 issuance program - in particular issues indexed to French consumer prices excluding tobacco (a € 1.5 billion, three-tranche issue), which are highly correlated to CRDS revenues, and customized issues, notably in Japan - attest to CADES 'reputation as an issuer of the highest rank.

Objectives met

In light of the results obtained in 2002, and using a conservative estimate of CRDS revenu growth per annum (3.5%), CADES expects to meet it fundamental aim of fully redeeming the accumulated social security debt by January 31, 2014. At the December 31, 2002 reporting date, the total repayment value of the debt was € 29.146 billion,down 1.15% compared with € 29.484 billion one year earlier. Including payments to the government of € 3 billion per annum between 2003 and 2005, and the payment of € 1.283 billion to various social security funds in 2003, the total debt payable by 2014 is € 38.5 billion.

Investors show increasing
appetite for indexed bonds

Growing market demand for indexed instruments from top-quality issuers has clearly benefited CADES, whose strategy has been built around inflation-indexed bonds since they were introduced on the European continent four years ago. Indeed, this type of issue is attracting a broader pool of investors than ever before. And as the participation for the first time of Japanese investors in 2003 attests, indexed issues appeal to an increasingly broad spectrum of investors, both in France and abroad. The transparency and visibility that CADES offers investors -reflected in its active and ongoing communications program targeting the financial community -have helped to broaden the appeal of these issues.
Since early 2003,CADES has tapped up indexed tranches CADESi 3.8%due July 2006 and CADESi 3.40%due July 2011. At the close of these two issues, worth a combined total of € 700 million, CADES bonds pegged to the French consumer price index (excluding tobacco) totaled € 7.3 billion.
The CADESi 3.8% July 2006 tranche was raised to € 3.180 billion via a € 350 million issue (spread -60 basis points below the OAT i 2009). The CADESi 3.40% July 2011 tranche was raised to € 1.850 billion via a € 350 million issue (spread of 23 basis points over the OATi 2009), marking the first time Japanese investors have participated in a CADES issue.
CADES expects that its issues will raise around € 3.5 billion in 2003.

CADES, an effective financing strategy

Founded in 1996, CADES (Caisse d'Amortissement de la Dette Sociale, or Social Security Debt Repayment Fund) has until January 14, 2014 to pay down the 52.7 billion euro debt accumulated by social security organizations before 1999. CADES receives the proceeds of a special tax known as the CRDS (social security debt repayment contribution), which are correlated with economic activity in France. Proceeds from the CRDS cover a variety of expenses: scheduled repayments of a portion of the debt; scheduled payments to the government, which financed part of this debt; general operating expenses and interest payable to the holders of bonds issued by CADES. To meet these financial obligations, CADES completes issues on the basis of its own needs and market demand,with the goal of paying down the total debt it has assumed by 2014.Managing debt via periodic bond issues is a complex financial undertaking that requires accurate forecasts of economic and market trends. Raising funds in the international financial marketplace under optimal conditions requires skill,disciplined management and a sterling reputation as an issuer. After seven years, CADES has acquired genuine and effective expertise in this field.

Information about CADES

Christophe Frankel
Chief Financial Officer

christophe.frankel@cades.fr
Fax: 33 01 55 78 58 02

Magali EGLIN
Assistant to the Chairman
Tel.: 33 01 55 78 58 00