Frankfurt am Main, February 14, 2012 -- Moody's Investors Service has today affirmed its provisional (P)Aaa long-term
debt rating with a continued stable outlook for the debt issuance programme
of the European Financial Stability Facility (EFSF). Moreover,
Moody's has also affirmed the short-term rating of provisional
(P)Prime-1 for the EFSF's debt issuance programme.
Moody's assigns a provisional rating when it is highly likely that the
rating will become definitive after all documents have been received.
In a related action, Moody's has today affirmed the Aaa and
Prime-1 ratings on the EFSF's existing issuances.
The affirmation applies both to the issuances occurred under the EFSF's
current structure as amended in October 2011, and to the issuances
that occurred under the EFSF's structure prior to October 2011.
Today's rating affirmation follows Moody's actions on euro
area sovereigns that are EFSF guarantors, including some countries
with significant shares in the EFSF's guarantor pool. The
actions included changing the outlooks on the Aaa ratings of France (which
holds a 21.8% share in the guarantor pool) and Austria (3.0%)
to negative from stable. Moreover, Moody's recent actions
also included the downgrade of the government debt ratings of Italy (19.2%)
and Spain (12.7%) to A3 from A2 and A1, respectively.
For full details, please refer to the webpage containing all of
Moody's related announcements http://www.moodys.com/newsandevents/topics/euro-area-sovereign-crisis-affected-credits/-/007022/-/-/0/0/-/0/-/-/en/global/rr?WT.mc_id=home_banner_EUPressurePR.
RATIONALE FOR AFFIRMATION OF THE (P)Aaa RATING ON THE EFSF ISSUANCE PROGRAMME
Although the recent actions on the ratings of some of the EFSF's
guarantors weaken the quality of the facility's guarantor pool,
Moody's decision to affirm the EFSF's (P)Aaa rating is driven
by the fact that no Aaa-rated country has lost its top-notch
rating. Consequently, the key rationale of the EFSF's
(P)Aaa rating -- namely, the full coverage of its issuance
(principal and interest) by guarantees from Aaa-rated member states
-- remains unchanged.
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 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 STABLE OUTLOOK
The stable outlook for the (P)Aaa rating of the EFSF largely reflects
the stable rating outlooks of Germany (the country with the largest share
in the guarantor pool, 29.1%), the Netherlands
(6.1%), Finland (1.9%) and Luxembourg
(0.3%), the 165% over-collateralisation
requirement, and Moody's opinion that the euro area countries
collectively remain firmly committed to supporting debt issued by the
EFSF.
Due to the 165% over-collateralisation requirement,
any new issuance by the EFSF would likely carry guarantees amounting to
60% of principal and interest payments guaranteed by sovereigns
that have Aaa ratings with stable outlooks. In addition,
40% of any issuance would likely be backed by guarantees from Aaa-rated
countries with negative outlooks, while 65% of any issuance
would be backed by guarantees from countries rated Aa and A (only Cyprus
with a 0.2% share has a lower rating -- its Baa3 rating
is on review for possible downgrade).
Moreover, beyond the explicit guarantees, Moody's sees
a strong implicit support for this facility from the participating countries,
which further reduces migration risk for the EFSF's rating.
RATIONALE FOR AFFIRMATION OF THE Aaa/P-1 RATINGS ON THE EFSF ISSUANCES
In a related action, Moody's has today also affirmed the Aaa
and Prime-1 ratings on the EFSF's existing issuances,
irrespective of whether the issuance occurred under the amended structure
as described above, or under the initial structure of the EFSF.
With the initial structure of the EFSF, the over-collateralisation
was lower (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.
TRANSITION/DOWNGRADE RISK
Risks that would negatively affect the creditworthiness of the programme,
leading to a negative outlook or a downgrade of the EFSF's rating,
would include a deterioration in the creditworthiness of the participating
euro area member states (as 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.
THE EFSF AS A TEMPORARY STRUCTURE
The EFSF is a temporary structure, whose activity can eventually
be transferred to the permanent ESM. At that time, the EFSF
may -- upon receiving the unanimous approval of the euro area member
states, and after obtaining any requisite consents from investors
in funding instruments -- transfer all and any of its rights,
obligations and liabilities, including under financial instruments,
financial assistance facility agreements and/or financial assistance,
to the ESM.
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 and disseminated through
Moody's Client Service Desk.
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.
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.
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
to it. Please see the ratings disclosure page on our website www.moodys.com
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 affirms (P)Aaa Rating for European Financial Stability Facility (EFSF)
