S&P Lowers Outlook on EFSF from Developing to Negative; Affirms Ratings
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On Feb. 27, 2012, Standard & Poor's Ratings Services revised its outlook on the European Financial Stability Facility (EFSF) to negative from developing. At the same time, we affirmed the 'AA+' long-term and 'A-1+' short-term issuer credit ratings on the EFSF.
Rationale
Following the lowering of the ratings on France and Austria on Jan. 13, 2012, the rated long-term debt instruments already issued by the EFSF are no longer exclusively supported by guarantees from the EFSF guarantor members rated 'AAA' by Standard & Poor's or 'AAA' rated liquid securities. Instead, the EFSF's instruments are now covered by guarantees from guarantor members or securities rated 'AAA' or 'AA+'.
Therefore, on Jan. 16, 2012, we lowered the long-term issuer credit rating on the EFSF, and the issue ratings on its long-term debt securities, to 'AA+' from 'AAA'.
At that time, we considered that credit enhancements--in addition to the existing 165% over-guarantee provided by each non-borrowing EFSF member state (see the full analysis listed below)--that would offset our view of the now-reduced creditworthiness of the EFSF's guarantors and securities backing the EFSF's issues could be forthcoming. We have since revised this view. We no longer expect EFSF member states to provide additional credit enhancements to ensure that its rated long-term debt instruments will be exclusively supported by guarantees from the EFSF guarantor members rated 'AAA' by Standard & Poor's or 'AAA' rated liquid securities.
Outlook
The negative outlook on the long-term rating on the EFSF mirrors the negative outlooks of France and Austria. Absent additional credit enhancements, we could lower the ratings on the EFSF if we lowered the long-term sovereign credit ratings on any of the EFSF's 'AAA' or 'AA+' rated members (Germany, France, The Netherlands, Austria, Finland, or Luxembourg) to below 'AA+'.
Rationale
Following the lowering of the ratings on France and Austria on Jan. 13, 2012, the rated long-term debt instruments already issued by the EFSF are no longer exclusively supported by guarantees from the EFSF guarantor members rated 'AAA' by Standard & Poor's or 'AAA' rated liquid securities. Instead, the EFSF's instruments are now covered by guarantees from guarantor members or securities rated 'AAA' or 'AA+'.
Therefore, on Jan. 16, 2012, we lowered the long-term issuer credit rating on the EFSF, and the issue ratings on its long-term debt securities, to 'AA+' from 'AAA'.
At that time, we considered that credit enhancements--in addition to the existing 165% over-guarantee provided by each non-borrowing EFSF member state (see the full analysis listed below)--that would offset our view of the now-reduced creditworthiness of the EFSF's guarantors and securities backing the EFSF's issues could be forthcoming. We have since revised this view. We no longer expect EFSF member states to provide additional credit enhancements to ensure that its rated long-term debt instruments will be exclusively supported by guarantees from the EFSF guarantor members rated 'AAA' by Standard & Poor's or 'AAA' rated liquid securities.
Outlook
The negative outlook on the long-term rating on the EFSF mirrors the negative outlooks of France and Austria. Absent additional credit enhancements, we could lower the ratings on the EFSF if we lowered the long-term sovereign credit ratings on any of the EFSF's 'AAA' or 'AA+' rated members (Germany, France, The Netherlands, Austria, Finland, or Luxembourg) to below 'AA+'.
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