EUROPE’S BAILOUT fund plans to raise €3 billion from a sale of three-year bonds after Standard & Poor’s said in December it may lose its top credit rating.
The European Financial Stability Facility (EFSF) has hired Credit Suisse Group, Deutsche Bank and Société Générale to manage the deal, which is the fund’s first bond of this maturity and will help finance the bailouts of Ireland and Portugal, it said.
The sale will follow the EFSF’s first bills auction last month and a €3 billion issue of February 2022 bonds in November last.
S&P said in early December the fund may lose its AAA rating.
The fund, which is overseen by the euro area members and sells debt to finance rescue loans extended to Europe’s high-debt and deficit nations, owes its top credit grading to guarantees from Germany, France, the Netherlands, Luxembourg, Austria and Finland. It may lose its top rating if one or more of its AAA-rated guarantors were downgraded, SP said, after putting 15 euro zone nations on review for a ratings cut.
“They need to be quite generous to get this one both out of the door successfully and also leaving some room for tightening in the secondary market,” said David Schnautz, a fixed-income strategist at Commerzbank in London.
The EFSF’s bonds have underperformed benchmark bonds as politicians and policymakers failed to draw a line under Europe’s sovereign crisis, which roiled markets for most of last year.
Investors demand 143 basis points more than government debt to hold the fund’s €5 billion of July 2016 bonds, from a low of 45 basis points on March 28th last, according to Bloomberg Bond Trader prices. The EFSF’s €5 billion of notes maturing in 2021 have a yield spread of 132 basis points, from a low of 58 basis points on July 5th. – (Bloomberg)
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