Wall Street Journal
October 28, 2011
Great news everybody, S&P has affirmed the AAA rating of the EFSF. As we all know, those AAA ratings are iron-clad, and they never go away.
Ah, but there’s a catch. A few catches, really.
S&P says the borrowing capacity of the soon-to-be steroidally enhanced EFSF will be constrained by the guarantees of its AAA backers. And the EFSF had for darned sure better flip the script in the eurozone for good, or that AAA rating could be at risk:
On Oct. 26, 2011, EFSF members agreed to leverage the resources of the EFSF through investments, partly in special purpose vehicles (SPVs), which will provide risk insurance and/or conditional direct financing or investment in member states. We do not expect this will affect the ratings on the EFSF as long as EFSF’s liability is limited to its equity-at-risk and not associated with the assets and operations of the SPVs. In our view, the EFSF’s borrowing capacity will remain constrained, at EUR452 billion, by the amount of guarantees made by ‘AAA’ rated members.
However, if EFSF-funded financial support programs do not improve market confidence in the eurozone, and contagion puts ‘AAA’ rated members’ ratings under pressure, this could indirectly affect EFSF’s creditworthiness.
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