Bond Backed by French SME Loans Looks to Open a New Market

French state-backed lender Bpifrance SACA sold a new type of bond backed by small company loans as it pushed to end a more than decade-long regulatory impasse over European Secured Notes.

An arm of Bpifrance raised €750 million ($867 million) in the first-ever ESN, according to a person familiar with the matter. The deal priced with a spread of 37 basis points over mid-swaps, tightened from around 42 basis points in earlier marketing, said the person, who asked not to be identified because the information is private. Investors placed more than €1.5 billion of final bids for the offering, they added.

That puts the deal tighter than Bpifrance’s senior debt curve, with its June 2031 unsecured notes currently indicated at about 40 basis points over mid-swaps.

The sale marks the culmination of a long process to create a type of debt that is backed by loans to small enterprises, which tend to fall outside the remit of European commercial banks’ covered bonds. With no formal rules in place yet, the issue is designed to encourage regulators to take action, potentially creating an instrument that further facilitates lending beyond blue-chip firms.

ESNs have been stuck in what ING Bank analyst Maureen Schuller called a “chicken-and-egg dynamic” in a note last week, as banks didn’t want to issue without regulatory clarity and regulators didn’t want to set rules in the absence of an established market.

The securities are similar to European banks’ covered bonds, which are backed by pools of mortgages. The asset-backed format gives investors additional protection and, in turn, allows borrowers to raise funds at lower costs. Like covered bonds, ESNs are dual recourse, giving investors the right to claim money both from the borrower and the underlying pool if things go wrong.

“Due to the dual recourse, secured nature of the bonds and their Aaa rating and, as such, better risk weights, the notes should be able to price through Bpifrance’s senior curve,” Schuller said earlier Tuesday.

The notes were sold under Bpifrance’s €2 billion secured notes program. The lender is planning two benchmark offerings in 2026, according to a presentation to investors in May. The bonds will by issued by a special entity set up for the program, Bpifrance ESN Master FCT.