1

A simple mission,

A complex communication

November 2005

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IntroductionIntroduction

CADES is a public agency that was established in 1996 to amortize the French social security debt.

Its mission was then significantly modified in 1998, 2000, 2002 and 2004.

CADES carried out an ambitious issue program in 2004 (€41 billion) and in 2005 (€35 billion).

Communication is a key factor and shows various aspects.

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Outline

1. A brief description of CADES p.4

2. The various aspects of our communication p.11

3. Problematic and contradictions p.14

4. Choices of CADES p.17

Appendices p.20

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-I -I -

CADES: Brief descriptionCADES: Brief description

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CADES: a simple mechanism

An agency created in 1996 by the French State to amortize the debt generated by the French social security program and ease reform of the system.

At low cost to French taxpayers, thanks to its lean structure and use of efficient financial instruments.

A simple mechanism designed to amortize the social security debt:

CADES borrows in the financial markets.

Cash flows to investors are secured through CRDS, a tax entirely dedicated to CADES.

CADES and CRDS will disappear at a fixed date.

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CADES: recognized credibility of a quasi–sovereign risk

Legal status: Etablissement Public Administratif…

… with a commitment from the State to investors: Solvency and liquidity guarantee Strict management control (Cour des Comptes, external audits)

The highest ratings: Long term: Aaa/AAA/AAA (Moody’s, S&P, Fitch Ratings) Short term: P-1 / A-1+ / F1+ (Moody’s, S&P, Fitch Ratings)

0% risk weighting for solvency ratio and Zone A central government status

Liquidity on the secondary market: listings on local exchanges, electronic platforms

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CADES: optimal management

Implementation of an asset/liability management model to optimize cost / volatility trade-off

Use of adapted and diversified financial instruments: index-linked bonds, private placement, bonds denominated in foreign currencies

Systematic hedging of foreign exchange risk

Significant reduction in counterparty credit risks through weekly margin calls

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1996: Assumption that Social Security will be back to equilibrium in 1997: Creation of CADES and CDRS until 2009: take over of €46 billion in debt

1998: Assumption that Social Security will be back to equilibrium in 1998: Take over of €13 billion in new debt; final life time postponed to 2014

2000: 1st Modification by law of the base of CRDS calculation 2002: 2nd Modification by law of the base of CRDS calculation

2004: Assumption that Social Security will be back to equilibrium in 2007:Take over of €50 billion in new debt; the end date of 2014 is eliminated

- CADES will continue to exist until the debt is fully extinguished.- Should CADES receive some new debt after 2006, the government will have to decide accurate measures to maintain its final maturity.

Key reforms along CADES’ life

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Positioning of CADES’ issue program

Expected funding requirements for sovereign and quasi-sovereign issuers in 2005

(In € billions)

Source: CSFB estimates, Euro Issuance Outlook, July 29, 2004(i) BTP only(ii) World Bank. Equivalent to USD18 bn – Exchange rate applied: US$/€uro: 1.2

0

20

40

60

80

100

120

140

160

Germ

any

Italy

(I)

Franc

eKFW EIB

Spain

CADES

Nether

lands

Belgium

Austri

a

Portu

gal

IBRD (i

i)

141

130111

5250

40 3530

20 15 1210

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CADES has now repaid nominal of €28.4 billion

Total CRDS receipt (i)

Capital amortized (est.) 28.4

Interest paid (est.) 14.6

43

Voted debt 110.4

Estimated net liability position 72.4

(1)

(2)

(1) - (2)

Source: CADES(i) included Euro 0.5 Billion for the sale of real estate assets

(€ billions)

As at november 12, 2005

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- II - The various aspects of our communicationThe various aspects of our communication

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Which targets ?Which targets ?

Investors: - institutional, retail - domestic, international

Rating agencies

Authorities: ministries in charge of supervision

Parliament: political power and citizen representatives

Press

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Which reasons ?Which reasons ?

Regulation: information to investors under the supervision of the market

authorities

Marketing: - to extend the investor base

- to lower the cost of funding

Lobbying: to influence political decisions

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- III - Problematic and contradictionsProblematic and contradictions

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Our investor baseOur investor base

International, institutional investors: central banks, life insurances, mutual funds, pension funds…

Hedge funds?

International, domestic retail ?

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Beauty contest or Prudence ?Beauty contest or Prudence ?

Toward Investors: CADES shows no risk as we are in a stable political environment under rational supervision;

Toward Supervisors: CADES reimbursement capacity is volatile, funding level is sensitive;

Toward Press: both risks

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- IV -Our choices

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Means of communicationMeans of communication

Road shows: - one to one

- meetings, conferences Website Newsletter Press releases, Press contacts Advertisement Board meetings, Parliament committees, State audit

service

Basic assumption: we don’t target domestic retail investors

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The rôle of the communication The rôle of the communication agencyagency

CADES has no team dedicated to communication: Need for outsourcing

A specific choice of action due to the scope of activity:

- Interest rates instruments for institutional investors

- limited number of competitors among AAA issuers world

International capabilities: investors lists, acurate press contacts, local logistic

Need to be able to react to news with political consequences

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-Appendices

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An active communication program

Web: www.cades.fr

Contact: christophe.frankel@cades.fr

Bloomberg: CADES <Go>

Reuters: CADESMTS01 CADESMTS02 CADES/T/U/V CADES01-04