Overall balance is maintained

Legislative changes affecting CADES in 2001 had a measurable but limited impact on the overall balance of its financial structure. CADES still expects to fully pay down its debt by 2014 at the latest.

Measures exempting the non tax paying unemployed and non taxable retirees from the CRDS (2001 Finance Act) limited growth in CRDS revenues to 2.23% in 2001, resulting in total revenues of 4.60 billion euros for the year.This slowdown was partially offset by a 350 million franc reduction in CADES' annual payment to the government.

A new schedule of payments, introduced in the 2002 Finance Act, calls for increased payments of 3 billion euros to the government annually from 2002 to 2005 (versus 2008 initially). Actuarial neutrality is still ensured for 2014.

CADES: disciplined management

In 2001, CADES continued to enforce its disciplined approach to expense and risk management.External controls and audits performed throughout 2001 attested to the high quality of its financial management, further reflected in the discharge granted by the Cour des Comptes (the French Audit Office) for 1996 to 1999.

These high standards, combined with an effective issue strategy, enabled CADES to post net income of 1.17 billion euros in 2001 and reduce its total debt for the sixth year in a row.Since 1996, CADES has paid down 10.9 billion euros of its initial debt of 51.4 billion euros.

Based on these observations and the conservative hypothesis of 3.5% growth in CRDS revenues per annum, CADES expects to be able to fully repay outstanding debt on schedule, by the end of its lifetime in 2014.

An active and targeted bond issue policy

CADES' position as a top grade issuer and its ability to respond quickly to demand supported the implementation of an ambitious bond issue program involving 3.54 billion euros in 12 tranches.With this issue, CADES took full advantage of market conditions and reinforced its image as a sought-after, liquid issuer.

The objectives of the program were to step up the issue of bonds pegged to the French consumer price index, strongly correlated to CRDS revenues, and enhance the liquidity of its benchmark debt issues.

All twelve tranches that were launched in 2001 served to tap up existing issues.

This program primarily impacted two inflation indexed issues – CADES i 2006, tapped up 2.180 billion euros in eight issues to reach total outstandings of 2.830 billion euros, and CADES i 2013, tapped up 300 million euros in two issues to reach total outstandings of 2.3 billion euros –and two fixed rate issues, the 3.375% 2004, tapped up 500 million euros and the 5.25% 2012, tapped up 561 million euros, bringing them to a total of 3 billion euros each.

Another highlight of the year was the decision to list CADES' three most liquid euro bonds (maturing in 2004, 2008 and 2012) on the MTS France electronic trading platform as of April 2001.The dual objective of this strategy of listing CADES products alongside government bonds was to enhance the liquidity and visibility of these benchmark issues.

In less than eight months, CADES substantially increased its liquidity and drew increased attention to its products.Its spreads differ little from those on government bonds, both in respect to historical values and compared to similar issuers.

EMTN transactions, which represented the majority of CADES' debt issues in 2000, amounted to only 115 million euros in 2001.CADES redeemed issues of USD 2 billion in December 2001.

Based on anticipated CRDS revenues of 4.6 billion euros in 2002, scheduled redemptions of medium and long-term debt totaling 4.3 billion euros, debt servicing charges of 1.5 billion euros and the annual payment of 3 billion euros to the government, CADES estimates its borrowing requirement at 4.5 billion euros for 2002.

Its issue program is guided by three key considerations:maintaining a high level of liquidity for the three benchmark issues listed on MTS France, further expanding the issue of bonds pegged to the French consumer price index and developing customized products such as the 380 million-euro "Uridashi" bond issued in January 2002 in Japan.

In 2002, CADES also plans to sell the majority of its real estate portfolio, comprising 35 buildings with a book value of 178 million euros.

Taking into account the recent legislative changes, CADES should attain a budgetary position of close to balance in 2002, in accordance with its objective of fully amortizing its debt by 2014 at the latest.

The repayment of CADES's off-balance sheet commitments to the government will be accelerated as a result of the revised schedule of payments.