Commentary & Deal Flow

Corporación Andina de Fomento (CAF) continued in its record-breaking ways on Wednesday as it gathered €14.5bn of orders for a €1.5bn sustainable euro 7yr. At $16.87bn-equivalent, this was the largest order book for any CAF deal in any currency, beating the $13bn achieved on a dollar 5yr in January.

“The order book was beyond all expectations,” said Manuel Valdez, head of DCM and derivatives at CAF. “To see an order book of this size compared to our deals five years ago really shows a positive evolution.”*

Given euro market volatility on the back of fears of a French government collapse, CAF (Aa3/AA/AA-) opted not to give price talk when it first announced the trade on Tuesday, enabling it to sound out investors. The development bank still gathered €1.6bn in IOIs by the end of the day.

CAF set guidance at 83bp area first thing Tuesday, and “within an hour the book exploded”, said Valdez. “That gave us the confidence to do a two-step process”, with guidance revised to 80bp, then a €1.5bn trade launched at 77bp.

As for RV, there was one clear reference point, the supra’s 3.625% February 2030s, spotted at around 70bp over Mid-Swaps at the end of last week – though this bond is not very liquid, and looked wide to peers.

“The idea behind this trade was to refresh our euro curve,” said Valdez. “We also wanted a little bit more duration [by going out to a 7y maturity].”

Meanwhile, the 5s to 7s curve in euro SSAs varies between issuers, but as an example, in the case of the EIB (Aaa/AAA/AAA) it’s worth around 10bp.

It all led to a consensus of fair value in the high 70s, and some thought it was hard to be more specific than that, but we’re going with CONCESSION IS NEG 1BP.

“We were tempted to push pricing further, and we could have done so, but it’s always good to leave something so it performs in secondary,” said Valdez. Indeed, the bond was seen in the low 70s by the end of the day.

Book breakdown:

Geography: Europe 71%; APAC 26%; Middle East 3%

Investor type: Asset managers 41%; Central banks & OIs 39%; Banks and private Banks 13%; Insurance and pension funds 7%

Sustainable refocus; room for Japan; USD prefunding possible

Also of note, this was CAF’s first bond under its new sustainability framework, which SPO provider Moody's granted a score of SQS2. It comes as CAF aims for 20% of its overall funding to be in sustainability format.

As for the rest of the year, CAF does not have a huge amount left to do, though Valdez said that there was “space for something in the Japanese market”.

In addition, “we might potentially do another benchmark in dollars in the longer part of the curve, as a prefunding exercise.”

*Some CAF context:

CAF euro benchmarks 2019-2021:

November 2019 – €1.2bn book on €750m 7yr                                            

May 2020 – €950m book on €700m 5yr

January 2021 - €1.8bn book on €1.25bn 5yr

CAF euro benchmarks 2024-2025:

February 2024 – €6.5bn book on €1.5bn 6yr

August 2025 – €14.5bn book on €1.5bn 7yr

This is quite a step change. Market participants credit a range of factors, including broader market conditions, but also CAF’s constant investor relations work over several years, and positive ratings trajectory as it becomes more and more established as a core SSA name.

As said one syndicate banker in London: “It was a fantastic book with great metrics, but this is just an example of CAF getting better and better trade after trade.”

olly@creditflowresearch.com

[CAF]

Corporacion Andina De Fomento (CAF) rated Aa3/AA/AA- (positive/stable/stable) EUR1.5bn (from EUR benchmark size) Reg S Registered form senior unsecured fixed rate sustainable notes due Sept 03 2032 (7y). Via BBVA, BNP Paribas, Credit Agricole CIB, Deutsche Bank and Santander joint leads. Joint Bookrunners will be paid a fee in connection to the transaction. List LSE. English law. Issued under CAF's EMTN programme. Fixed coupon pays annually (Act/Act ICMA). Denoms: 100kx1k. Settles Sept 03 (T+5). ISIN: XS3171589040.

Guidance: MS+83bp area.

Revised guidance: MS+80bp area.

Final terms: EUR1.5bn at MS+77bp.

Priced: 3.125% at 99.290, yield 3.24%. MS+77bp. +81.7bp vs DBR 1.70% 08/15/32.

Orderbook in excess of EUR14.5bn ex JLM interest (from EUR13bn excluding JLM at launch, and from EUR11bn excluding JLM interest at guidance). Books closed at 10:30am UKT Aug 27.

UOP: to finance eligible projects per CAF's Sustainable Finance framework.

Relevant stabilization regulations including FCA/ICMA stabilization apply. The manufacturer target markets (MIFID II and UK MiFIR product governance) as assessed by the lead managers are eligible counterparties and professional clients (all distribution channels). No EU PRIIPS or UK PRIIPs key information document has been prepared as the securities will not be available to retail in EEA or the UK.

CAF is dedicated to fostering sustainable and inclusive development in its shareholder countries and advancing regional integration throughout Latin America and the Caribbean.

Further information on CAF's new Sustainable Finance Framework and the Second Party Opinion are available on: https://www.caf.com/en/investors/sustainable-finance/