Tuesday, December 6, 2011

S&P Now Puts Europe's EFSF on Negative Credit Watch

This had to happen since all its guarantors are on negative watch. From S&P today
"Standard & Poor’s Ratings Services today placed the ‘AAA’ long-term credit rating on the European Financial Stability Facility (EFSF) on CreditWatch with negative implications. At the same time, we affirmed the ‘A-1+’ short-term credit rating on EFSF.

Our ‘AAA’ long- and ‘A-1+’ short-term ratings on EFSF are based on (i) the unconditional, irrevocable, and timely guarantees from EFSF members (guarantor members) rated ‘AAA’ by Standard & Poor’s that support EFSF’s obligations (bonds, notes, commercial paper, debt securities, or other financing arrangements) and, (ii) the ‘AAA’ rated securities that constitute EFSF’s liquidity reserves. Standard & Poor’s has placed the ‘AAA’ long-term issue ratings on EFSF’s guarantor members Austria, Finland, France, Germany, Luxembourg, and The Netherlands on CreditWatch negative (see “Standard & Poor’s Puts Ratings On Eurozone Sovereigns On CreditWatch With Negative Implications,” published on Dec. 5, 2011), indicating our view of their increased credit risks.

A CreditWatch negative placement indicates that, in our opinion, there is at least a one-in-two probability of the rating being lowered in the short term. Based on EFSF’s current structure, were we to lower one or more of the current ’AAA’ ratings on EFSF’s guarantor members, all else being equal, we would lower the issuer and issue ratings on EFSF to the lowest sovereign rating on members currently rated ‘AAA’.

In our media releases of Dec. 5, 2011, on the CreditWatch placements of individual ‘AAA’ rated guarantor members, we indicated that our ratings on Austria, Finland, Germany, Luxembourg, and The Netherlands are currently unlikely to fall by more than one notch, and the ratings on France by no more than two notches, if at all. Accordingly, we currently anticipate that if we lower the rating on EFSF, it could be by up to two notches.

We expect to resolve EFSF’s CreditWatch placement within 90 days and, if possible sooner, after we complete the review of EFSF guarantor members currently rated ‘AAA’.

We could lower the long-term credit rating on EFSF by one or two notches if we were to lower the ‘AAA’ sovereign ratings, which are currently on CreditWatch, on one or more of EFSF’s guarantor members. Conversely, we could affirm the ’AAA’ ratings on EFSF and its issues if we affirm the rating on all six of EFSF’s guarantor members currently rated ‘AAA’. We could also affirm the ratings if we were to lower the current ‘AAA’ ratings on one or more guarantor members, but had evidence that the EFSF guarantor members were implementing further credit enhancements that were in our view sufficient to mitigate the relevant guarantor members’ reduced creditworthiness".

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