DBRS Morningstar: High French Public Sector NEU CP Issuances Driven by Increasing Funding Needs and Greater Financing Diversification

DBRS Morningstar released a commentary discussing the issuances of French commercial paper (called NEU CP – Negotiable European Commercial Paper) by the public sector in 2020 and in 2021.

French public sector entities increased their year-on-year NEU CP issuances by 31% to EUR 300 billion in 2020. This growth was mainly driven by increasing funding needs reflecting the impact of the Coronavirus Disease (COVID-19) pandemic on public finances last year, especially for the two government-related entities in charge of funding France's social security and unemployment insurance systems, respectively Agence Centrale des Organismes de Sécurite Sociale (ACOSS) and Unedic. DBRS Morningstar currently expects the rhythm of public sector NEU CP issuances to slow down in 2021, especially for ACOSS, given the planned reduction in the social security deficit, on the back of the strong economic recovery expected for France in the second half of the year but also reflecting ACOSS's debt transfers to Caisse d’Amortissement de la Dette Sociale (CADES) for EUR 16.4 billion in the second half of 2020 and EUR 38.7 billion scheduled for 2021.

French sub-sovereign governments (SSGs) also contributed to the 2020 hike given that their NEU CP issuances reached a new record high last year, at EUR 39 billion versus EUR 27 billion in 2019. The number of SSGs issuing in the NEU CP market remained relatively stable in 2020 compared with 2019, at around 25, meaning that there was a higher reliance on the NEU CP market for SSGs already benefiting from a programme. “The volume of NEU CP issuances by French SSGs will likely continue to increase in 2021 as they continue to take benefit of the negative yields on these short-term issuances. On the other hand, their alternative short-term funding facilities, which largely correspond to bank liquidity lines, tend to be floored at 0%”, says Nicolas Fintzel, Senior Vice President at DBRS Morningstar.

French social and affordable housing providers (SAHPs) are also gradually accessing the financial markets. Five new SAHPs entered the NEU CP market in 2020 pushing the total number of SAHPs issuing under their short-term programme to twelve. Their NEU CP issuances reached EUR 8.5 billion, compared with EUR 3.4 billion in 2019. “We expect this trend to continue with more SAHPs likely to access the NEU CP market in 2021, given the very good financial conditions they generally benefit from and their willingness to diversify their funding sources” concludes Mehdi Fadli, Vice President at DBRS Morningstar.

Notes:
The commentary titled: “High French Public Sector NEU CP Issuances Driven by Increasing Funding Needs and Greater Financing Diversification” is available at www.dbrsmorningstar.com.

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