Frankfurt am Main, July 25, 2012 -- Moody's Investors Service has today changed the outlook on the provisional
(P)Aaa long-term rating of the European Financial Stability Facility
(EFSF) to negative from stable. The action follows the assignment
of a negative outlook earlier this week on the Aaa debt ratings of three
of the EFSF's guarantors: Germany, the Netherlands and
Luxembourg. The provisional (P)Aaa long-term and (P)Prime-1
short-term ratings for the debt issuance programme of the EFSF
remain unchanged. A provisional rating for a debt facility is an
indication of the rating that the rating agency would likely assign to
future draw-downs from the facility, pending the receipt
of documentation detailing the terms of the debt issuance. Moody's
also affirmed the Aaa ratings on all of the facility's outstanding
drawn-downs.
For additional information on Sovereign ratings, please refer to
the webpage containing Moody's related announcements http://www.moodys.com/eusovereign
RATINGS RATIONALE
--RATIONALE FOR NEGATIVE OUTLOOK
The change in the outlook on the EFSF's (P)Aaa rating to negative
follows the recent changes in rating outlooks announced by Moody's
on euro area sovereigns that are EFSF guarantors, including some
countries with significant shares in the EFSF's guarantor pool.
Specifically, Moody's changed the outlooks on the Aaa ratings
of Germany (which holds a 29.1% share in the guarantor pool),
Netherlands (6.1%) and Luxembourg (0.3%) to
negative from stable. Hence, the change in the outlook on
the (P)Aaa rating of the EFSF reflects the now negative rating outlooks
on all but one of its Aaa guarantors -- namely Finland, which
has a stable rating outlook.
--RATIONALE FOR UNCHANGED (P)Aaa/(P)P-1 RATING ON
EFSF ISSUANCE PROGRAMME
Although recent outlook changes for some of the EFSF's Aaa guarantors
imply an increased likelihood that the EFSF might be downgraded over the
next 12 to 18 months, Moody's has left the EFSF's (P)Aaa
rating unchanged because all of the guarantors that carried Aaa ratings
at the time that a (P)Aaa rating was assigned to the EFSF under its current
structure remain Aaa-rated. The key rationale supporting
the EFSF's (P)Aaa rating remains in place; that is, each
new issuance of the EFSF will benefit from a full guarantee of principal
and interest by Aaa-rated member states.
The EFSF's debt issuance programme is primarily backed by (i) the
supported countries' promise to repay the loan or the debt instrument
that the EFSF has acquired; (ii) Aaa-rated guarantees,
which are sufficient by themselves to cover all of the associated debt
service if the supported countries do not honour their debt obligations;
and (iii) guarantees from non-Aaa-rated member states that
participate in the EFSF.
More specifically, each euro area member state issues an irrevocable
and unconditional capped guarantee in proportion to its share in the capital
of the European Central Bank (ECB). Its share in the guarantor
pool is proportionally increased to make up for the stepped-out
guarantors -- namely, Greece, Ireland and Portugal --
leading to guarantees that exceed the value of the issued debt by up to
65%. Due to the EFSF's over-collateralisation
of 165% and the 62.2% share of Aaa-rated countries
in the EFSF's guarantor pool, the facility's issuance
is therefore fully covered by Aaa-rated guarantees.
--RATIONALE FOR UNCHANGED Aaa/P-1 RATINGS ON EFSF
ISSUANCES
The Aaa and Prime-1 ratings on the EFSF's existing issuances
are also unchanged, irrespective of whether the issuance occurred
under the amended structure as described above, or under the initial
structure of the EFSF. Under the initial structure of the EFSF,
the over-collateralisation was lower than currently (120%
rather than 165% in the amended structure), but investors
benefited from a loan-specific cash buffer (which is not employed
in the amended structure). The loan-specific cash buffer
was sized such that the portion of the debt issuance, which was
not backed by cash held by the EFSF, was fully covered by Aaa-rated
government guarantees.
For a more detailed discussion of the rating rationales for the amended
structure and the initial structure, please see the Press Release,
entitled "Moody's affirms (P)Aaa Rating to European Financial Stability
Facility (EFSF)", published on 29 October 2011, and
the Special Comment, entitled "Key Elements of EFSF's
(P)Aaa Rating ", published on 20 September 2010, respectively.
--WHAT COULD MOVE THE RATING DOWN
Risks that would negatively affect the creditworthiness of the EFSF programme,
leading to a downgrade of the EFSF's rating, would include
a deterioration in the creditworthiness of the participating euro area
member states (as would be reflected by a change in Moody's ratings
for these states). In this context, the EFSF's rating
is sensitive to changes in the ratings of Aaa countries with large EFSF
contribution keys, i.e. Germany, France and
the Netherlands. Moreover, a weakening of the commitment
among euro area member states to the EFSF could also have negative rating
implications.
--WHAT COULD MOVE THE OUTLOOK BACK TO STABLE
Conversely, the outlook on the EFSF's ratings could return
to stable if the outlooks on the ratings of Aaa countries with large EFSF
contribution keys, i.e. Germany, France and
the Netherlands, were moved to stable.
--RATING METHODOLOGY
The EFSF's ratings were assigned by evaluating factors relevant to the
specific characteristics of the facility, reflecting its dual nature
as a financing facility and vehicle of public policy. These attributes
were compared against those of other issuers, and Moody's
believes the EFSF's ratings to be similar to other issuers of similar
credit risk.
Moody's assigns a provisional rating when it is highly likely that the
rating will become definitive after all documents have been received.
Moody's will monitor the transaction on an ongoing basis to ensure that
it continues to perform in the manner expected. Any subsequent
changes in the rating will be publicly announced.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the rating are the following:
parties involved in the ratings, parties not involved in the ratings,
and public information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
The rated entity has received a Rating Assessment Service within the last
two years preceding the Credit Rating Action.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
two years preceding the credit rating action. Please see the special
report "Ancillary or other permissible services provided to entities
rated by MIS's EU credit rating agencies" on the ratings disclosure
page on our website www.moodys.com for further information.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%)
and for (B) further information regarding certain affiliations that may
exist between directors of MCO and rated entities as well as (C) the names
of entities that hold ratings from MIS that have also publicly reported
to the SEC an ownership interest in MCO of more than 5%.
A member of the board of directors of this rated entity may also be a
member of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating
Process page on www.moodys.com for further information on
the meaning of each rating category and the definition of default and
recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history. The date on
which some ratings were first released goes back to a time before Moody's
ratings were fully digitized and accurate data may not be available.
Consequently, Moody's provides a date that it believes is
the most reliable and accurate based on the information that is available
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for further information.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has
issued the rating.
Dietmar Hornung
VP - Senior Credit Officer
Sovereign Risk Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Bart Oosterveld
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's changes outlook on the EFSF's (P)Aaa rating to negative
