( The 16) S&P : European Financial Stability Facility Long-Term Ratings Cut To ‘AA+’; Short-Term Ratings Affirmed; Outlook Developing

On Jan. 13, 2012, we lowered to ‘AA+’ the long-term sovereign credit ratings on two of the European Financial Stability Facility’s (EFSF’s) previously ‘AAA’ rated guarantor member states, France and Austria.
The EFSF’s obligations are no longer fully supported either by guarantees from EFSF members rated ‘AAA’ by Standard & Poor’s, or by ‘AAA’ rated securities. We consider that credit enhancements sufficient to offset what we view as the reduced creditworthiness of guarantors are currently not in place.
We are therefore lowering our long-term issuer credit rating on the EFSF to ‘AA+’ from ‘AAA’. We are also affirming the ‘A-1+’ short-term rating on EFSF.
The outlook is developing, which reflects that we could raise the EFSF’s long-term rating to ‘AAA’ if we see that additional credit enhancements are put in place, but also the likelihood that we could lower the rating further if we conclude that the creditworthiness of the EFSF’s members will likely be further reduced over the next two years.

LONDON (Standard & Poor’s) Jan. 16, 2012–Standard & Poor’s Ratings Services
today lowered the ‘AAA’ long-term issuer credit rating on the European
Financial Stability Facility (EFSF) to ‘AA+’ from ‘AAA’ and affirmed the
short-term issuer credit rating at ‘A-1+’. We removed the ratings from
CreditWatch, where they had been placed with negative implications on Dec. 6,
2011. The outlook is developing.

When we announced the placement of the ratings on the EFSF on CreditWatch on
Dec. 6, 2011, we said that, depending on the outcome of our review of the
ratings of the EFSF’s guarantor member sovereigns, we would likely align the
issue and issuer credit ratings on the EFSF with those of the lowest issuer
rating we assigned to the EFSF members we rated ‘AAA’ (as of Dec. 6, 2011),
unless we saw that sufficient credit enhancements were in place to maintain
the EFSF rating at ‘AAA’ (see “European Financial Stability Facility Long-Term
‘AAA’ Rating Placed On CreditWatch Negative,” published Dec. 6, 2011).

On Jan. 13, 2012, we announced rating actions on 16 members of the European
Economic and Monetary Union (EMU or eurozone; see “Standard & Poor’s Takes
Various Rating Actions On 16 Eurozone Sovereign Governments,” Jan. 13, 2012).
We lowered to ‘AA+’ the long-term ratings on two of the EFSF’s previously
‘AAA’ rated guarantor members, France and Austria. The outlook on the
long-term ratings on France and Austria is negative, indicating that we
believe that there is at least a one-in-three chance that we will lower the
ratings again in 2012 or 2013. We affirmed the ratings on the other ‘AAA’
rated EFSF members: Finland, Germany, Luxembourg, and The Netherlands.

Following the lowering of the ratings on France and Austria, the rated
long-term debt instruments already issued by the EFSF are no longer fully
supported by guarantees from the EFSF guarantor members rated ‘AAA’ by
Standard & Poor’s, or ‘AAA’ rated liquid securities. Instead, they are now
covered by guarantees from guarantor members or securities rated ‘AAA’ or

We consider that credit enhancements that would offset what we view as the
now-reduced creditworthiness of the EFSF’s guarantors and securities backing
the EFSF’s issues are currently not in place. We have therefore lowered to
‘AA+’ the issuer credit rating of the EFSF, as well as the issue ratings on
its long-term debt securities.

The developing outlook on the long-term rating reflects the likelihood we
currently see that we may either raise or lower the ratings over the next two

We understand that EFSF member states may currently be exploring
credit-enhancement options. If the EFSF adopts credit enhancements that in our
view are sufficient to offset its now-reduced creditworthiness, in particular
if we see that once again the EFSF’s long-term obligations are fully supported
by guarantees from EFSF member-guarantors rated ‘AAA’ or by securities rated
‘AAA’, we would likely raise the EFSF’s long-term ratings to ‘AAA’.

Conversely, if we were to conclude that sufficient offsetting credit
enhancements are, in our opinion, not likely to be forthcoming, we would
likely change the outlook to negative to mirror the negative outlooks of
France and Austria. Under those circumstances we would expect to lower the
ratings on the EFSF if we lowered the long-term sovereign credit ratings on
the EFSF’s ‘AAA’ or ‘AA+’ rated members to below ‘AA+’.


Sovereign Government Rating Methodology And Assumptions, June 30, 2011
Principles Of Credit Ratings, Feb. 16, 2011
Rating Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010
Timeliness of Payments: Grace Periods, Guarantees, And Use Of ‘D’ And ‘SD’ Ratings, Dec. 23, 2010
Use Of CreditWatch And Outlooks, Sept. 14, 2009
Rating Sovereign-Guaranteed Debt, April 6, 2009
European Financial Stability Facility’s €27 Billion Debt Issuance Program Rated ‘AAA’, Jan. 19, 2011
European Financial Stability Facility Long-Term ‘AAA’ Rating Placed On CreditWatch Negative, Dec. 6, 2011
Standard & Poor’s Puts Ratings On Eurozone Sovereigns On CreditWatch With Negative Implications, Dec. 5, 2011
Credit FAQ: Factors Behind Our Placement Of Eurozone Governments On CreditWatch, Dec. 5, 2011
Greece ‘BB+’ Sovereign Rating Placed On CreditWatch Negative On Unveiling Of European Stability Mechanism Plan, Dec. 2, 2010

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