European Stability Mechanism (ESM) and European Financial Stability Facility (EFSF) take note of the decision by Moody’s to change both entities’ long-term rating from Aaa to Aa1. Moody’s decision follows the recent change of France’s long term rating from Aaa to Aa1.
ESM and EFSF continue to be assigned the best possible long-term by Fitch (AAA) and the best and short-term credit rating by Fitch and Moody’s. This underlines ESM’s uniquely robust capital structure and the solidity of EFSF.
Klaus Regling, Managing Director of the ESM and CEO of EFSF said: “Moody’s rating decision is difficult to understand. We disagree with the rating agency’s approach which does not sufficiently acknowledge ESM’s exceptionally strong institutional framework, political commitment and capital structure.”
Jean-Claude Juncker, President of the Eurogroup and Chairman of the ESM and the EFSF Board of Governors said: “The 17 euro area Member States are fully committed to ESM and EFSF in political and financial terms and stand firmly behind both institutions.”
ESM will have the largest paid-in capital amount of any multilateral lending institution with €80 billion by 2014 (currently €32 billion). Furthermore it has €620 billion of callable capital with a unique and highly reliable capital call mechanism. Also, the Heads of State or Government have stated that ESM loans will enjoy preferred creditor status. EFSF benefits from of an irrevocable guarantee mechanism with a volume of up to €780 billion by the 17 euro area Member States.
“In its rating decision even Moody’s stresses the credit strengths of ESM and EFSF due to their low leverage and the creditworthiness of its Member States”, Klaus Regling said. “This rating action does not inhibit ESM or EFSF in any way to act or emit.”
Only on Tuesday, November 27, EFSF demonstrated its attractiveness as an issuer by placing a €7 billion one-year benchmark bond that was met with exceptionally strong demand with close to €9 billion in orders received from investors around the world.