The rating actions were prompted by Fitch's downgrade of France's Long-term Issuer Default Ratings (IDRs) to 'AA+'/Stable and the affirmation of its Short-term rating at 'F1+' on 12 July 2013. EFSF's ratings rely on the irrevocable and unconditional guarantees and over-guarantees provided by euro area Member States (EAMS). These commitments are governed by an international agreement dated in June 2012 by the 17 EAMS - the EFSF Framework Agreement (FA) - and by a Deed of Guarantee. The downgrade of France's IDR had a high weight in Fitch's rating actions.
The original version of the FA ensured that all payments due on EFSF debt are covered by guarantees provided by EAMS, pro-rata based on their contribution key in the European Central Bank, which could be extended to 120 per cent of their initial amount. Subsequent amendments to the FA and Deed of Guarantee, applicable to all debt issued since October 2011, reduced the credit enhancement through cash buffers and extended the percentage of over-guarantee percentage to 165 per cent.
Following the downgrade of France's IDR, the EFSF's long-term debt issues are not fully covered by 'AAA' guarantees and over-guarantees and, for debt issued before October 2011, by the cash reserve. However, short-term debt issues remain entirely covered by guarantees and over-guarantees issued by EAMS rated 'F1+'.
Full press release
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