DBRS Confirms European Investment Fund’s Rating at AAA with Stable Trend Following UK Vote

DBRS Ratings Limited (DBRS) has confirmed the long-term foreign and local currency ratings of the European Investment Fund at AAA, and the short-term foreign and local currency ratings at R-1 (high). The trend on all ratings is Stable. (See ‘DBRS Confirms the EU, EIB and EIF at AAA Following UK Referendum on EU’.)

The majority of British voted to leave the European Union on a referendum held on 23rd June. The outcome opens a period of significant political uncertainty in Europe. DBRS is of the view that if the UK does in fact leave, then the EU will be poorer, smaller, less influential, and possibly less stable. Nevertheless, the Stable trend on the ratings reflects the resiliency of the Fund to downside risk as result of its strong fundamentals.

Despite the challenges brought forward by the vote to leave, DBRS considers that the EIF strengths enable it to manage potential shocks that could arise in the immediate future. We expect both the EIB and the EU to support the Fund, if needed, to preserve its creditworthiness. DBRS continues to rate the EIF at a level equivalent to AAA on the basis of both the Support and the Intrinsic Assessments. The ratings of the EIF are primarily based on the AAA Support Assessment. This is underpinned by the creditworthiness of its core shareholders (as defined by DBRS’ methodology “Rating Supranational Institutions” published in March 2016) and by the credibility of their commitment. The EIF’s shareholders are the European Investment Bank (EIB or the Bank, with 61.2% of capital), the European Union (EU, 26.5%), and 30 EU and Turkish financial institutions (12.3%). DBRS considers the EIB is the dominant shareholder of the Fund. With respect to the creditworthiness of their core shareholders, following the vote to remain in the EU, DBRS has confirmed the ratings of the EIB (AAA, Stable) and EU (AAA, Stable). Cohesiveness and commitment towards the European project continues to be strong, underscoring the importance of the EIF as the EU policy vehicle for SME financing.

The EIF’s Intrinsic Assessment of AAA is based on its very strong capital and liquidity position, a strong franchise, and a moderate risk and earnings profile. The EIF has no marketable or bilateral debt outstanding, and all of its obligations are from (i) potential disbursements to private equity fund managers, and (ii) guarantee calls from beneficiaries.

RATING DRIVERS
The ratings could face downward pressure as a result of a downgrade in the Support Assessment. The ratings are more resilient to a deterioration in the Intrinsic Assessment. The Support Assessment could be subject to downward pressure in the event of a downgrade of EIF’s core shareholders, or under evidence of a structural change in EU policy priorities in the field of SME financing, which in turn may lead to a weaker mandate for the EIF.

Notes:
All figures are in (EUR) unless otherwise noted.

The principal applicable methodologies are Rating Supranational Institutions and Rating Sovereign Governments, which can be found on the DBRS website under Methodologies. The principal applicable rating policies are Commercial Paper and Short-Term Debt, and Short-Term and Long-Term Rating Relationships, which can be found on our website under Rating Scales.

These can be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include the European Investment Fund and the European Investment Bank. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This is an unsolicited credit rating. This credit rating was not initiated at the request of the issuer.

This rating included participation by the rated entity or any related third party. DBRS had no access to relevant internal documents for the rated entity or a related third party.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive Trend are resolved within a twelve month period. DBRS’s outlooks and ratings are under regular surveillance.

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Lead Analyst: Javier Rouillet, Assistant Vice President, Global Sovereign Ratings
Rating Committee Chair: Alan G. Reid, Group Managing Director, Global FIG and Sovereign Group
Initial Rating Date: 1 August 2014
Last Rating Date: 31 July 2015

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