Chillin' out till it needs to be funded
For some reason, S&P did not need any working days to discover if the remaining AAA countries would take affirmative action after German PM Angela Merlkkel mentioned the downgrade may be better than increasing guarantees of the fund though the two could not be linked. Earlier S&P CEO had avered that EFSF could keep its AAA rating if the remaining 4 AAA credits could increase contributions guarantees to the fund.
The S&P website announced the downgrade at 13:34 pm EST with EFSF rated to AA+ and a developing outlook, i.e. removing negative watch placed on Dec 5 and updating the developing outlook with actions of increasing guarantees and contributions that can bring the rating back to AAA and that if guarantees are reduced, more downgrades can happen in the next two years.
The short term rating remains the highest A1+
Here is the rating summary from the S&P note:
- 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.
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