Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the cases of sovereigns, sub-sovereigns and supranational organisations that may act as a lender of last resort.

Scope performs monitoring reviews to determine whether material changes and/or changes in macro-economic or financial-market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit rating’s performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the European Financial Stability Facility (long-term foreign-currency issuer and senior unsecured debt ratings: AA+/Stable; short-term foreign-currency issuer ratings: S-1+/Stable) on 14 January 2025.

This monitoring note does not constitute a credit-rating action, nor does it indicate the likelihood that Scope will conduct a credit-rating action in the short term. Information about the latest credit-rating action connected with this monitoring note along with the associated ratings history can be found on www.scoperatings.com.

Key rating factors

For the updated rating annex accompanying this review, please see here.

Scope’s AA+ rating of the EFSF reflects the supranational’s highly rated key shareholders, strong guarantee mechanism and favourable capital market access, with its EUR 20bn long-term funding programme for 2024 completed by end-August, and the 2025 funding programme estimated at around EUR 21.5bn. However, the EFSF’s mandate to lend to euro area crisis-hit countries and its lack of preferred creditor status result in a moderate asset quality, and its shareholder base is highly concentrated.

As of July 2013, the EFSF can no longer engage in new financial assistance facilities. However, the EFSF continues to manage existing programmes in Greece (BBB/Stable), Portugal (A/Stable) and Ireland (AA/Stable), including the repayment of outstanding debts. Repayments by the EFSF’s three borrowers stretch over a long period with Portugal expected to make its final repayment in 2040, Ireland in 2042 and Greece in 2070.

While the EFSF does not have any meaningful capital, 13 euro area member states provide irrevocable, unconditional, timely guarantees and over-guarantees for the EFSF’s debt issuances. The four largest euro area economies – Germany (AAA/Stable), France (AA-/Stable), Italy (BBB+/Stable) and Spain (A/Stable) – jointly guarantee 83% of the EFSF’s liabilities, providing them with significant control in the decision-making bodies. These four sovereigns thus constitute the EFSF’s key shareholders, with a weighted-average rating of AA-.

The EFSF also has a strong institutional setup with an over-guarantee of up to 165% of the maximum lending capacity of EUR 440bn. Following the sovereign rating downgrade for France (AA-/Stable) by Scope in October 2024, Scope’s assessment of the strength of the EFSF’s over-guarantee mechanism has weakened. Following France’s downgrade, the share of the EFSF’s outstanding liabilities covered by shareholders rated AA or above fell from more than 100% to 67%. Scope therefore removed the previous one-notch positive adjustment to the key shareholder rating of AA- which, in itself, does not change the final rating of the EFSF but it lowers buffers for potential future rating actions on key shareholders.

If either Germany’s sovereign rating, or any two of the other key shareholders’ ratings, were downgraded in future, all other things equal, this would lead to a lower average key shareholder rating of A+ and therefore a one-notch downgrade of the EFSF’s long-term rating.

The Stable Outlook reflects our view that risks are balanced over the next 12 to 18 months. The ratings/Outlooks could be downgraded if: i) key shareholders were downgraded. The ratings/Outlooks could be upgraded if, individually or collectively: i) key shareholders were upgraded; and/or ii) the EFSF’s liquidity buffers increased significantly and permanently.
 
The methodology applicable for the reviewed ratings and/or rating Outlooks (Supranational Rating Methodology, 21 June 2024) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Eiko Sievert, Senior Director

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