Morningstar DBRS Confirms the European Financial Stability Facility at AAA, Stable Trend

DBRS Ratings GmbH (Morningstar DBRS) confirmed the European Financial Stability Facility's (EFSF) Long-Term Issuer Rating at AAA and Short-Term Issuer Rating at R-1 (high). The trend on all ratings is Stable.

DEVIATION FROM MORNINGSTAR DBRS' EU CALENDAR
This is a deviation from Morningstar DBRS' EU Sovereign, Sub-Sovereign, and Supranational Calendar. While the next scheduled publication for the EFSF's credit ratings is on 18 July 2025, Morningstar DBRS decided to deviate from the Calendar to assess the implications of the Trend change on the credit ratings of one of the EFSF' core guarantors. On 21 March 2025, Morningstar DBRS changed the Trend on the Republic of France's Long-Term Foreign Currency and Long-Term Local Currency Ratings (both rated AA (high)) to Negative from Stable.

KEY CREDIT RATING CONSIDERATIONS
The rating action reflects Morningstar DBRS' assessment of the impact on the EFSF' credit ratings of the Trend change on the credit ratings of one of the EFSF' core guarantors. EFSF's credit ratings depend entirely on its Support Assessment and reflects (1) the unconditional and irrevocable guarantees and over-guarantees provided by Euro area member states as stipulated by the EFSF Framework Agreement; (2) the creditworthiness of the EFSF guarantors; and (3) the strong commitment of the member states to support the institution. Morningstar DBRS defines the EFSF's core guarantor group as the Federal Republic of Germany (AAA, Stable), the Republic of France (AA (high), Negative), the Republic of Italy (BBB (high), Positive) and the Kingdom of Spain (A (high), Stable).

The weighted median guarantor credit rating of this group stands at AA (high) in line with France's credit rating. The creditworthiness of the core guarantors is key for the EFSF's credit ratings. However, Morningstar DBRS believes that the strong credibility of the commitment of Euro area member states towards the institution combined with the additional diversification benefits stemming from AAA governments outside the core guarantor group would mitigate a potential one-notch downgrade of the weighted median guarantor credit rating of the core group, provided that cohesion among core guarantors or their political commitment does not weaken materially. Additionally, EFSF's shared mission with the European Stability Mechanism (ESM), their very close link and their integrated level of operability reinforces the credibility of support from member states towards the EFSF.

CREDIT RATING DRIVERS
The credit ratings could be downgraded if one or a combination of the following occur: (1) there is a meaningful deterioration in the creditworthiness of a single core guarantor, particularly if it reflects a material weakening of the cohesion of core member states or of the strength of their political commitment to the Monetary Union; or (2) although unlikely given its Stable trend, Germany (AAA, Stable) is downgraded.

CREDIT RATING RATIONALE

The Core Guarantors' Commitment to the EFSF and the Additional Diversification Stemming from AAA Governments Outside the Core Guarantor Group Drive the Credit Ratings

Morningstar DBRS does not provide a full Intrinsic Assessment of the EFSF, given its financial structure that is based on guarantees and over-guarantees. Morningstar DBRS defines the EFSF's core guarantor group as the Federal Republic of Germany (AAA, Stable), the Republic of France (AA (high), Negative), the Republic of Italy (BBB (high), Positive) and the Kingdom of Spain (A (high), Stable). These four guarantors are the largest by guarantee size, each representing more than 10% of the EFSF contribution key on an individual basis and accounting cumulatively for 83% of the overall guarantor pool.

The weighted median guarantor credit rating of this group, which is the primary driver of the Support Assessment, currently stands at AA (high), in line with France's credit rating. Despite the AA (high) weighted median guarantor credit rating, Morningstar DBRS considers that the EFSF's Support Assessment remains at AAA. This reflects the strong credibility of the commitment of Euro area member states towards the institution combined with the additional diversification benefits stemming from AAA governments outside the core guarantor group. The contribution key from AAA-rated guarantors amount to 39% of the total.

The EFSF credit ratings rely primarily on the guarantees provided by Euro area member states, given the very low amount of paid-in capital. In the event of default by a beneficiary member state on an EFSF loan, the shortfall would be covered by the guarantees and credit enhancement measures provided by member states. The over-guarantee structure backing the EFSF's obligations (with maximum over-guarantees of 165% of the original guarantee by each guarantor) provides additional support to the credit ratings through its core guarantors.

The Mandate of the EFSF's, Continued by its Successor the ESM, is Essential for Member States

Morningstar DBRS continues to assess the commitment of core guarantors to support the EFSF as very strong. The EFSF has been an integral part of a broader policy response to the Euro area sovereign debt crisis about a decade ago, and an illustration of the commitment of member states to preserve the Monetary Union. Given the importance of the mandate of the EFSF, Morningstar DBRS continues to believe that its guarantors are highly likely to meet their obligations and provide support to the institution in a stress scenario. While the EFSF's mandate has not been affected by the coronavirus pandemic, the ESM, which took over its role of providing financial assistance to the Euro area at the end of 2012, was part of the EU response package to the pandemic. This has confirmed the key role of both institutions as well as the commitment of their member states to support them if needed. Morningstar DBRS also views positively the high degree of integration between the EFSF and the European Stability Mechanism (ESM). Both institutions operate under the same management and benefit from the same early warning system, which allows the EFSF/ESM's teams to oversee debt repayments and would allow the institutions to take swift action, if it ever became necessary.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental, Social or Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024) https://dbrs.morningstar.com/research/437781.

RATING COMMITTEE SUMMARY
The main points discussed during the Rating Committee include the impact of the trend change on the credit ratings of one of the EFSF's core guarantors, the credibility of the commitment of Euro area member states towards the institution and the additional diversification benefits stemming from AAA governments outside the core guarantor group.

Notes:
All figures are in euros unless otherwise noted. Public finance statistics reported on a general government basis unless specified.

The principal methodology is the Global Methodology for Rating Supranational Institutions (16 February 2024) https://dbrs.morningstar.com/research/428245. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings, https://dbrs.morningstar.com/research/437781, in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The sources of information used for this credit rating include EFSF's financial statements as of December 31, 2023, the EFSF and ESM Investor Presentation (March 2025), the EFSF's prospectus for its guaranteed debt issuance programme (27 June 2024), the ESM 2023 annual report, the ESM homepage, the EFSF and ESM carbon footprint report, the ESM ESG Summary Report 2023. Morningstar DBRS considers the information available to it for the purposes of providing this credit rating to be of satisfactory quality.

With respect to FCA and ESMA regulations in the United Kingdom and European Union, respectively, this is an unsolicited credit rating. This credit rating was not initiated at the request of the issuer.

With Rated Entity or Related Third-Party Participation: NO
With Access to Internal Documents: NO
With Access to Management: NO

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

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are under regular surveillance.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://www.dbrsmorningstar.com/research/450628.

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Mehdi Fadli, Senior Vice President, Sector Lead Global Sovereign Ratings
Rating Committee Chair: Nichola James, Managing Director, Global Sovereign Ratings
Initial Rating Date: 27 July 2012
Last Rating Date: 17 January 2025

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