Rating action

Scope Ratings GmbH (Scope) has today affirmed the European Financial Stability Facility (EFSF)’s AA+ long-term issuer and senior unsecured foreign-currency ratings, along with the short-term issuer rating of S-1+ in foreign currency. All Outlooks are Stable.

Scope’s affirmation of the EFSF’s AA+ rating reflects the supranational’s highly rated key shareholders, strong guarantee mechanism and favourable capital market access. Rating challenges include the EFSF’s concentrated sovereign loan exposures and its lack of preferred creditor status, which results in moderate asset quality, as well as the entity’s highly concentrated shareholder base.

Find the updated Rating Report here.

Rating rationale

Highly rated key shareholders

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 maximum lending capacity, 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’s key shareholder rating has been stable in recent years, including following a one-notch downgrade of France to AA-/Stable in October 2024. At the same time, France’s sovereign downgrade weakened Scope’s assessment of the strength of the EFSF’s over-guarantee mechanism, as the share of maximum liabilities covered by guarantors rated AA or above fell from over 100% to around 67%. Scope therefore removed a one-notch positive adjustment to the key shareholder rating of AA- which did not impact the final rating of the EFSF. However, this lowers buffers for potential future downward rating actions on key shareholders.

If either Germany’s sovereign rating, or any two of the other key shareholders’ ratings, were downgraded by one notch, 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.

Robust institutional setup, including the strong guarantee mechanism

The EFSF’s guarantee framework is highly credible because a failure to honour the guarantees would sharply lower market confidence in euro area sovereigns’ commitment to other European institutions, particularly the European Stability Mechanism (ESM, rated AAA/Stable). The strong institutional setup includes an over-guarantee mechanism of up to 165% of the EFSF’s outstanding debt securities, resulting in guarantees of around EUR 724.5bn for a maximum lending capacity of EUR 440bn.

Since 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. Around two-thirds of maximum debt issuance is covered by guarantees from sovereigns rated AA or higher, after adjusting for over-guarantees, including from Germany (48.0%), the Netherlands (10.1%), Austria (4.9%), Finland (3.2%) and Luxembourg (0.4%).

The EFSF’s guarantee mechanism also supports its conservative liquidity management policy. The ESM/EFSF’s Early Warning System tracks payments due every month and evaluates countries’ repayment capacity, ensuring that liquid assets can service debt obligations ahead of each bond repayment. However, if available cash and bank deposits were insufficient to cover a scheduled repayment three days before the due date – which has not occurred to date – the EFSF would call on guarantees, including via the over-guarantee mechanism, if needed, and would receive the required funds from shareholders within two business days.

Favourable capital market access

EFSF issuances are designated as Level 1 high-quality liquid assets, granted a 0% risk weighting under the Basel framework and are included in several SSA and government bond indices. This preferential regulatory treatment, along with guarantees from its highly rated shareholders, has allowed the EFSF to raise significant volumes in the past from a strong, well-diversified investor base of the ESM and EFSF, including banks, fund managers as well as pension funds and insurers.

As the EFSF no longer engages in new programmes, financing existing loans results in predictable funding needs that will decline gradually over time. Outstanding debt securities amounted to around EUR 187bn as at end-2024, and annual funding needs are EUR 21.5bn in 2025 and EUR 18bn in 2026. The EFSF has a proven ability to issue across the yield curve by using various instruments with very long maturities and relatively low funding costs. This reduces the significant refinancing risks resulting from the maturity mismatch between its lending and funding operations, given outstanding loans at very long weighted average maturities (42.3 years for Greece and 20.8 years for Portugal and Ireland).

Finally, the EFSF’s funding flexibility allows it to prefund and thus raise its cash buffer (as it did between 2017 and 2019), which can lower liquidity risks. Scope notes that the EFSF’s liquid assets, including cash and cash equivalents and highly rated treasury assets, have declined to around EUR 2.3bn at YE 2024, from EUR 5.5bn at YE 2023, indicating a liquid assets ratio of 9.1% and a weighted average ratio of 14.2% between 2022-24. The liquidity coverage ratio has been relatively volatile in recent years, averaging 21.4% in the last five years. Still, the overall liquidity and funding assessment is favourable reflecting the EFSF’s strong market access.

Rating challenges: concentrated shareholder base, mandate to lend to crisis-hit countries, no preferred creditor status

First, while the EFSF benefits from guarantees and over-guarantees from highly rated shareholders, its shareholder base is highly concentrated compared to other supranationals. This increases its dependence on any one shareholder’s ability to honour guarantees if called. That being said, Scope has no doubt that shareholders would be willing to honour any guarantee call should one ever be made.

Second, the EFSF was set up to provide financial assistance to crisis-hit countries, resulting in a concentrated loan portfolio. As of June 2025, EUR 126bn (or 75.1% of the total) is owed by Greece (BBB/Stable), EUR 24bn (14.3%) by Portugal (A/Stable) and EUR 17.7bn (10.6%) by Ireland (AA/Stable). Following recent upgrades of these sovereigns, the EFSF’s weighted average borrower quality has improved in recent years from B+ in 2017 to BBB+.

In line with its mandate, the EFSF demonstrates flexibility to reprofile loans to reduce interest and defer amortisation payments to ease repayment pressure on its borrowers. This enhances the creditworthiness of borrowers and, in turn, reduces the credit risk of the EFSF’s own portfolio. Repayments on outstanding loans by the EFSF’s three borrowers stretch over a long period with Portugal expected to make its scheduled repayments from 2025 to 2040, Ireland from 2029 to 2042 and Greece from 2023 to 2070. The first scheduled repayments were received from Greece since 2023.

Finally, despite acting as a lender of last resort to the three programme countries, the EFSF does not benefit from having preferred creditor status as most supranationals do. Its debt securities thus rank pari passu with those of private creditors.

Rating-change drivers

The Stable Outlook reflects Scope’s opinion that risks to the credit ratings over the next 12 to 18 months are balanced.

The downside scenario for the ratings and Outlooks is:

1. Germany or any two of the other key shareholders were downgraded.

Upside scenarios for the ratings and Outlooks are (individually or collectively):

1. Key shareholders were upgraded;
    
2. The EFSF’s liquidity buffers increased significantly and permanently.

Factoring of environment, social and governance (ESG)

Scope considers ESG sustainability issues during the rating process as reflected in its supranational methodology. ESG factors are explicitly captured in Scope’s assessment of the institutional profile, which Scope assesses as ‘Adequate’ for the EFSF, and the assessment of potential climate risks under the portfolio quality assessment.

Supranational scorecard

Scope’s supranational scorecard, which is based on clearly defined quantitative parameters, provides an indicative ‘aaa/aa’ rating for the EFSF. Additional considerations allow Scope to incorporate idiosyncratic characteristics that cannot be assessed in a consistent and comprehensive manner across all supranationals, but which may still affect the creditworthiness of the issuer.

No adjustment was made to the indicative rating of the EFSF.

Given the EFSF’s favourable access to capital markets and the volatile nature of its liquid assets (which are mostly due to pre-funding), Scope overwrites the temporary signal from its scorecard, which signals a lower assessment for the ‘liquid assets ratio’.

A rating committee has discussed and confirmed these results.

For further details, please see section IV of the rating report.

Rating Committee
The main points discussed by the rating committee were: i) shareholder support; ii) institutional profile; iii) financial profile, including the guarantee framework, asset quality, liquidity and funding; iv) additional considerations; and v) consideration of peers.

Methodology
The methodology used for these Credit Ratings and/or Outlooks, (Supranational Rating Methodology, 23 May 2025), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
With Rated Entity or Related Third Party participation     YES
With access to internal documents                                  NO
With access to management                                           NO 
The following substantially material sources of information were used to prepare the Credit Ratings: public domain.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlooks and the principal grounds on which the Credit Ratings and/or Outlooks are based. Following that review, the Credit Ratings and/or Outlooks were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlooks are UK-endorsed.
Lead analyst: Julian Zimmermann, Director
Person responsible for approval of the Credit Ratings: Alvise Lennkh-Yunus, Managing Director
The Credit Ratings/Outlooks were first released by Scope Ratings on 8 May 2020. The Credit Ratings/Outlooks were last updated on 19 July 2024.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
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