Euro zone ups SPV loan guarantees to get top rating

* Countries to guarantee 120 percent of their share of loans

* Intention is to secure highest rating for the debt

* Aim is also to ensure creditors can be paid off

By Jan Strupczewski

LUXEMBOURG, June 7 (BestGrowthStock) – Countries setting up an
emergency loan company for the euro zone will each guarantee 120
percent of their share of the loans to secure the highest rating
for the debt, euro zone officials said on Monday.

By providing more than 100 percent of the loan guarantees,
euro zone countries hope to ensure that creditors can still be
paid off if one or more country runs into financial problems and
is unable to make good on its guarantees.

The company is called the European Financial Stability
Facility (EFSF) and is part of efforts to prevent other
countries that use the euro suffering similar problems to
heavily indebted Greece. [ID:LDE65612T]

European Commission spokesman Amadeu Altafaj said after
talks between euro zone finance ministers in Luxembourg that the
ministers expected it to secure a AAA credit rating.

“Ministers have agreed on a number of measures to ensure the
best possible credit quality and rating for the debt instruments
issued by EFSF,” the ministers said in a statement.

The statement said the measures included “a 120 percent
guarantee of each Member State’s pro rata share for each
individual bond issue and the constitution, when loans are made,
of a cash reserve to provide an additional cushion or cash
buffer for the operation of the EFSF.” [ID:nLDE6562E6]

“Member States have agreed that other mechanisms would be
adopted if needed to further enhance the creditworthiness of the
bonds or debt securities issued by the EFSF,” it said.

The company, a special purpose vehicle (SPV), will be a
limited liability company operating under Luxembourg law that
will be able to borrow up to 440 billion euros ($525.4 billion)
on the market by issuing bonds guaranteed by euro zone states.

Altafaj said that since the bonds would be guaranteed by the
euro zone, it would be fair to call them eurobonds.

“The facility will be operational as soon as countries
representing 90 percent of shareholdings have completed their
national procedures, which is expected is the course of June,”
Jean-Claude Juncker, the chairman of the group of euro zone
finance ministers, told a news conference. [ID:nLDE6560NZ]

“The recruiting process for the CEO of the facility has
begun and he or she will be nominated very shortly, in the
coming days, along with the chairman of the board,” he said.

European Economic and Monetary Affairs Commissioner Olli
Rehn said the SPV would be run by a board of directors — the
same people who represent euro zone countries in the economic
and financial committee that prepares ministers’ meetings.

The European Commission, the EU executive, will contribute
to the management of the SPV and, together with the European
Central Bank, assess requests for aid from the facility and set
conditions for it.

The European Investment Bank said it was ready to provide
treasury management services and administrative support to the
company through a service level contract.

“The EIB’s role would be similar to the back office support
it provides already to a number of trust and other funds set up
by the Commission and Member States,” the bank said.

Stock Research

(Reporting by Jan Strupczewski, editing by Timothy Heritage)

Euro zone ups SPV loan guarantees to get top rating