This report does not constitute a rating action.
Credit Highlights
The ratings on the European Financial Stability Facility (EFSF; AA/Negative/A-1+) reflect that its obligations are fully covered by irrevocable, unconditional, and timely guarantees provided by sovereigns rated 'AA' or higher. As of Dec. 31, 2022, the EFSF had €197 billion of debt outstanding, which was 106% covered by guarantees from sovereigns with long-term ratings of 'AA' or higher. Importantly, the ratings do not depend on the quality of the EFSF's borrowers, namely Greece, Ireland, and Portugal.
The EFSF no longer engages in new programs. On Oct. 8, 2012, the European Stability Mechanism (ESM) replaced the EFSF's activities. However, the EFSF continues to manage existing loan programs and will continue refinancing maturing debt, backed by explicit guarantees from the participating sovereigns.
Outlook
The negative outlook on the EFSF reflects primarily our negative outlook on France, the entity's second-largest guarantor as defined by its capital contribution, and the resulting possibility that coverage of the EFSF's liabilities by guarantors rated 'AA' or above could fall below 100% within the next 18-24 months.
Downside scenario
We would lower the rating on the EFSF if we lowered those on France or any other member state guarantor currently rated 'AA' or above to below 'AA' and if we believed the remaining guarantees and liquid securities rated 'AA' or above were no longer sufficient to cover all of the EFSF's funding instruments.
Upside scenario
We could raise our long-term rating on the EFSF if we were to raise the ratings on France or one or more member state guarantors rated 'AA' or below, to higher than 'AA' so that the entity's obligations were fully covered at the higher rating level by comparable guarantees and collateral.
Rationale
Guarantors of the EFSF's bond issuances include most eurozone member states, among which we rate France and Belgium 'AA'. The coverage of outstanding EFSF long-term debt by outstanding guarantees from sovereigns rated 'AA' or higher is currently greater than 100%. While the coverage of the guarantees of EFSF long-term debt from sovereigns rated 'AA' or higher is currently greater than 100%, it would fall below 100% should we lower our long-term rating on France below 'AA'. Of importance, the ratings do not depend on the quality of the EFSF's borrowers, namely Greece, Ireland, and Portugal.
Our ratings on the EFSF hinge on the creditworthiness of its guarantors because the EFSF's paid-in capital is minimal. All EFSF funding instruments are severally (but not jointly) guaranteed by eurozone members, except those that stepped out--namely Greece, Ireland, Portugal, and Cyprus as of Dec. 21, 2013--and Latvia and Lithuania, which did not step in. As of year-end 2022, the EFSF had disbursed €185.5 billion in loans to Ireland, Portugal, and Greece through its assistance programs, with the majority (€141.8 billion) going to Greece.
The second Greek program ended in June 2015, with a total outstanding balance of €130.9 billion to the EFSF (€10.9 billion in EFSF bonds were returned). The subsequent program for Greece in August 2015 came from the ESM and ended in August 2018. Ireland's program concluded in December 2013, with the EFSF having disbursed a total of €17.7 billion. Portugal's program ended in May 2014, with the EFSF having disbursed a total of €26 billion. In October 2019, Portugal made an early repayment to the EFSF of €2 billion. The EFSF currently has €172.6 billion of outstanding loans. The weighted-average tenor at inception of Greece's debt to the EFSF was extended to 42.3 years as a result of the medium-term relief measures approved for the country by the EFSF's board of directors in November 2018. The weighted-average loan tenor is 20.8 years for Portugal and Ireland. The first principal repayments will be in 2023 for Greece, 2025 for Portugal, and 2029 for Ireland.
We expect the EFSF will continue refinancing maturing debt well ahead of the due dates, backed by the explicit guarantees from participating sovereigns. In our view, despite recent uncertainties regarding the eurozone's economy due to the COVID-19 pandemic, the EFSF is unlikely to need to call on the sovereign guarantees in the foreseeable future, since we expect Portugal, Greece, and Ireland will make their loan repayments in full and on time.
The EFSF achieved its target issuance of €19.5 billion for 2022 and targets issuance of €20 billion for 2023. It uses the ESM's "Early Warning System" to anticipate any shortfall risk related to countries where it has loan exposure. If a cash shortfall were to materialize, each guarantor would be required to pay an amount up to their individual guarantee commitment corresponding to the shortfall. For this reason, our 'BB+' long-term sovereign credit rating on Greece, the EFSF's main debtor, does not affect our ratings on the EFSF. We analyze the strength of the guarantees and the reliability of the mechanisms in place to assure timely payment by guarantors if the guarantees were called on.
As of Dec. 31, 2022, the EFSF had €193.2 billion of debt securities in nominal amounts outstanding. The EFSF's bill program was replaced by the ESM's bill program in January 2013. The EFSF has benefited from low funding costs since its inception, and we expect it will continue to do so. Under the Basel framework, EFSF bonds are considered to have 0% risk weights. Furthermore, the European Central Bank has included the EFSF in its expanded public-sector asset purchases program, which started again in November 2019 after halting in December 2018, and ended in July 2022.
We rate the EFSF's long-term debt issues 'AA'. For supranational institutions where we are confident all financial obligations benefit systemically from shareholder guarantees--such as in cases where the entity is in wind-down mode, and such guarantees may be called on in advance to meet maturing obligations--we may equalize the issuer credit rating with the issue rating determined as per paragraphs 113-116 of "Multilateral Lending Institutions And Other Supranational Institutions Ratings Methodology," published Jan. 31, 2022.
Key Statistics
Table 1
| European Financial Stability Facility--Selected Indicators | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Member | Ratings | EFSF amended contribution key (%) | 'AAA' guarantee coverage on long-term issues (%) | 'AA+' and above guarantee coverage on long-term issues (%) | 'AA' and above guarantee coverage on long-term issues (%) | 'A-1+' coverage on short-term issues (%) | ||||||||
|
Austria |
AA+/Stable/A-1+ | 3.0 | -- | 4.8 | 4.8 | 4.5 | ||||||||
|
Belgium* |
AA/Stable/A-1+ | 3.7 | -- | -- | 6.0 | 5.6 | ||||||||
|
Cyprus |
BBB/Stable/A-2 | -- | -- | -- | -- | -- | ||||||||
|
Estonia |
AA-/Negative/A-1+ | 0.3 | -- | -- | -- | 0.4 | ||||||||
|
Finland |
AA+/Stable/A-1+ | 1.9 | -- | 3.1 | 3.1 | 2.9 | ||||||||
|
France* |
AA/Negative/A-1+ | 21.9 | -- | -- | 35.1 | 33.1 | ||||||||
|
Germany* |
AAA/Stable/A-1+ | 29.1 | 46.7 | 46.7 | 46.7 | 44.1 | ||||||||
|
Greece |
BB+/Stable/B | -- | -- | -- | -- | -- | ||||||||
|
Ireland |
AA-/Positive/A-1+ | -- | -- | -- | -- | -- | ||||||||
|
Italy* |
BBB/Stable/A-2 | 19.2 | -- | -- | -- | -- | ||||||||
|
Luxembourg |
AAA/Stable/A-1+ | 0.3 | 0.4 | 0.4 | 0.4 | 0.4 | ||||||||
|
Malta |
A-/Stable/A-2 | 0.1 | -- | -- | -- | -- | ||||||||
|
Netherlands* |
AAA/Stable/A-1+ | 6.1 | 9.8 | 9.8 | 9.8 | 9.3 | ||||||||
|
Portugal* |
BBB+/Stable/A-2 | -- | -- | -- | -- | -- | ||||||||
|
Slovakia |
A+/Negative/A-1 | 1.1 | -- | -- | -- | -- | ||||||||
|
Slovenia |
AA-/Stable/A-1+ | 0.5 | -- | -- | -- | 0.8 | ||||||||
|
Spain* |
A/Stable/A-1 | 12.8 | -- | -- | -- | -- | ||||||||
| Total | N/A | 100.0 | 57.0 | 64.9 | 106.0 | 101.2 | ||||||||
| Cyprus, Greece, Ireland, and Portugal have stepped out as EFSF guarantors. Ratings as of Jan. 30, 2023. *Unsolicited ratings. N/A--Not applicable | ||||||||||||||
Related Criteria
- Multilateral Lending Institutions And Other Supranational Institutions Ratings Methodology, Jan. 31, 2022
- General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017
- General Criteria: Guarantee Criteria, Oct. 21, 2016
- General Criteria: Principles of Credit Ratings, Feb. 16, 2011
- General Criteria: Environmental, Social, And Governance Principles In Credit Ratings, Oct. 10, 2021
Related Research
- Sovereign Ratings List, Jan. 4, 2023
- Sovereign Ratings History, Jan. 4, 2023
- Sovereign Risk Indicators, Dec. 12, 2022; a free interactive version is available at http://www.spratings.com/sri
- Sovereign Ratings Score Snapshot, Jan. 18, 2023
| Primary Credit Analyst: | Pierre Hollegien, Paris + 33 14 075 2513; Pierre.Hollegien@spglobal.com |
| Secondary Contacts: | Marta Saenz, Madrid + 34 91 788 7231; marta.saenz@spglobal.com |
| Alexander Ekbom, Stockholm + 46 84 40 5911; alexander.ekbom@spglobal.com | |
| Additional Contact: | Sovereign and IPF EMEA; SOVIPF@spglobal.com |
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