Patrice Ract Madoux
Président de la CADES

In coming months, CADES should continue to benefit from a combination of favourable factors. The French government has reasserted that its objective is to balance the Social Security's accounts and even to generate a surplus by 2001. Furthermore, economic indicators in France and the countries that are its main trading partners are bullish. Against this background, CADES' policy will be to strengthen its positioning on the euro market by keeping its year 2000 issuance programme at between 4 billion and 5 billion.

A benchmark issuer on the euro market

As planned, CADES has further strengthened its position as a blue chip issuer on the euro market. It has confirmed its creditworthiness and the liquidity of its debt, while extending its debt structure to cover the entire yield curve. A new issue was launched at the start of the year: the CADESi 2006. Each of the six bond issues denominated in euros represents outstanding debt in excess of 2 billion euros: a bond issue at 5.5% maturing on April 25, 2002; a bond issue at 3.375% maturing on July 12, 2004; a bond issue at 6% maturing on July 25, 2005; a bond issue at 6.25% maturing on October 25, 2007; a bond issue at 5.125% maturing on October 25, 2008; and a bond issue at 5.25% maturing on October 25, 2012.

CADES' credit rating

Standard & Poor's, Moody's and Fitch IBCA have assigned the best long and short-term ratings to CADES :

* AAA/A1+ * Aaa/P1 * AAA/F1+

CADES' credit rating has been further enhanced by the favourable prudential treatment of its issues: like those of sovereign issuers from the OECD area, its issues benefit from a 0% Cooke ratio weighting. They also enjoy favourable treatment in terms of the risk-asset ratios of mutual funds and insurance companies.

New staff

Philippe Noël has joined the market trading team as deputy head. He has had several years' experience of fixed income markets with a major French bank. Magali Eglin has taken charge of the Chairman's secretariat.

The results for fiscal 1999

As forecast, CADES' main source of funds, the CRDS income tax levy, yielded 4.3 billion (FRF28.1 billion). The 6.1% increase on the previous fiscal year was due to high revenues and the fact that in 1999, for the first time, the books took into account receivables from previous fiscal years. To these revenues were added proceeds from the sale of property assets worth 226 million (FRF1.5 billion), 69 million of which were collected in 1999.

CADES' gross indebtedness amounted to 34.7 billion (FRF227.7 billion) compared with 34.2 billion (FRF224.5 billion) in 1998. Bond issues outstanding totalled 27.3 billion (FRF175.076 billion) in 1999, compared with 23.6 billion (FRF154.8 billion) in 1998. To this amount must be added 1.9 billion (FRF12.46 billion) worth of debt owed to credit institutions in the form of private placements. This amount is the same as in 1998.

Short-term indebtedness has fallen by half to 3.6 billion (FRF23.6 billion) compared with 7.8 billion (FRF51.7 billion) in 1998. "Other Liabilities" (non-financial outstanding debt) amounted 1.3 billion (FRF8.5 billion) in 1999, compared with 37.3 million (FRF244.7 million) the year before. This rise was due to the strong growth in margin calls and to the balance of the annual payment to the French government. CADES' negative net equity diminished from 32.8 billion (FRF215.153 billion) to 31.7 billion (FRF208 billion) following a net income appropriation of 1.1 billion (FRF7 billion) for the fiscal year. This doubling of the net income in 1999 over the previous year, when it amou-nted to 538 million (FRF3.5 billion) was due mainly to the increase in CADES' reve-nues from the CRDS income tax levy, higher property asset revenues, while interest payments and operating overheads remained stable. CADES plans to sell all of its property assets by the year 2008.

CADES' annual net income must be put into perspective by taking into account the time given to CADES to fulfil its purpose of transferring debt (18 years and one month). In approving the accounts, the Board of Directors emphasised that CADES was very likely to pay off its net debt by January 31, 2014, as redefined by the 1998 Social Security Funding Act, provided no new laws are passed and on the basis of reasonable GDP and interest rate forecasts. CADES' net indebtedness in terms of repayment value fell from 32.6 billion (FRF213.8 billion) in 1998 to 31.9 billion (FRF209.2 billion).

Issuing policy in 2000

In spite of a less favourable environment due to the uptrend in interest rates since February 1999, CADES has succeeded in stabilising both the present cost (5.01%) and the duration (4.6 years) of its debt. It has also broadened its investor base to include mutual fund managers, corporate treasurers and asset-liability managers, thanks to the launch of the CADESi 2006 issue. As in 1999, CADES' refinancing programme will diminish in 2000. Since the start of the year, issues have totalled 1.6 billion, which is less than in previous years.

For year 2000, CADES' financing needs should amount to around 4 or 5 billion.

Inflation-indexed issues : the new July 2006 issue.
In April 1999, CADES launched its first inflation-indexed issue maturing in 2013. In January 2000, it launched another issue of this type maturing on July 25, 2006. The initial volume of the CADESi 2006 issue was 500 million. This issue offered a real interest rate of 3.80%. The reoffer price was set at 99.807% at the same interest rate as the OATi issue maturing on July 25, 2009. Indexation of the CADESi 2006 issue is based on the same principle as for the CADESi 2013 and OATi issues, featuring: principal and interest indexed to CPI excluding tobacco; principal guaranteed at par at maturity. As announced, CADES swiftly increased this issue in response to market expectations by issuing a second 150 million tranche with a face value of 3.80%. The reoffer price was set at 99.92%, with a spread one basis point lower than the level of the OATi maturing on July 25, 2009.

Utilisation of medium-term debt programmes.
The flexibility of utilisation of MTN programmes provides an excellent alternative to the products available at the short end of the yield curve. For this reason, CADES has kept its international medium-term debt (EMTN) programme amounting to 10 billion and its domestic (BMTN) programme amounting to 1.5 billion. Since the start of the year, CADES has issued 1.2 billion worth of private placements in several currencies (yens, Hong Kong dollars and euros).

Repayment
CADES has effected its first repayments. After repaying the USD500 million FRN issue maturing in December 1999, the Y100 billion (600 million) Samurai bond maturing in April 2000 was paid off. In the autumn, CADES will be repaying a 1.5 billion issue maturing in October 2000.

In response to investor expectations: the CADESi issue.
Since bottoming out at historically low levels last year, long-term interest rates have risen continually due to fear of a resurgence of inflation fuelled by the sustained growth revival. After reaching a record low of 3.725% in February 1999, the 10-year OAT government bond was trading at 5.50% in early May, compared with 5.711% two months before. Faced with this overall context featuring rising interest rates, in the first half of 2000, CADES continued its efforts to help investors manage their positions as well as possible. By launching the CADESi 2006 issue, CADES created a new issue indexed to inflation. Like the previous issue of this kind, bond portfolio and fund managers welcomed the CADESi 2006 issue. While optimising CADES' back-to-back asset-liability management, such an issue also enables investors to hedge against an upsurge in inflation.

Broadening the investor base outside the euro zone
In order to diversify its investor base, CADES has continued to implement its policy of issuing outside the euro zone. Thus, as part of its EMTN programme, CADES has again issued paper denominated in yens and Hong Kong dollars.

Changes in debt structure at May 15, 2000

Corporate communications

To foster dialogue with non-resident investors, CADES regularly holds road shows. The latest ones have taken place in Scotland, England and Spain. CADES' web site is accessible at the following address : http://www.cades.fr

The quotation of CADES' issues

Investors have at their disposal a variety of media for obtaining the latest information on CADES' various issues. On the internet, CADES' web site permanently displays the latest data on its main domestic issues quoted in Paris. On electronic servers such as Reuters, Telerate, Fininfo and Bloomberg (type CADES GO or CADES Corp Go) etc..., CADES issues are quoted by major banks.

CADES benchmark issues over view*

CADES inflation linked bonds (CADES)*

Extract from Reuters page <CADES04> May, 19^th 2000 07:34

* Indicative prices as at May 19 2000
** Spread vs OATi 3% 25 Jul 2009
*** Break Even Inflation (Inflation Point Mort)