Fitch: EFSF And France Joined At The AAA Downgrade Hip

Tyler Durden's picture

Fitch admits, via Bloomberg headlines, what we already knew:




Full Fitch Statement


Fitch Ratings-London-20 December 2011: Fitch Ratings says the 'AAA' rating on debt issues of the European Financial Stability Facility (EFSF) largely depends on France and Germany retaining their 'AAA' status. The revision of the rating Outlook on France to Negative last Friday implies that the risk of a downgrade of EFSF debt has increased.

We affirmed France's 'AAA' status but warned that that there is a slightly greater than 50% chance of a downgrade within the next year or two. This is therefore also the case for the 'AAA' ratings assigned to the EFSF's debt issues, unless additional credit enhancement mechanisms are introduced.

The 'AAA' ratings assigned to EFSF debt issues rely on the EUR726bn of irrevocable and unconditional guarantees provided by the euro member states, and on the conservative guidelines the EFSF sets itself regarding debt management and liquidity risk.

Of the guarantees and over-guarantees from 'AAA' rated member states, France and Germany provide EUR369.6bn, or over 80%. Although the EFSF could potentially remedy a downgrade of a small 'AAA' guarantor by increasing the size of its cash reserve or through additional credit enhancements, this would be far more challenging if a larger guarantor like France or Germany were downgraded. The primary source of ratings risk for EFSF debt issues is therefore the possibility that one or more of its largest 'AAA' guarantors is downgraded.

Because we do not assign Outlooks to the ratings of individual debt issues, but rather to our issuer ratings, the change in the French issuer rating Outlook cannot immediately be reflected in changes to our assessment of EFSF debt issues. We rate EFSF debt issues but not the EFSF itself, as it is the former rather than the latter that benefit from sovereign guarantees.

Under the amended Framework Agreement announced at the EU summit on 21 July, 'AAA' rated euro member states provide EUR451.5bn of guarantees and over-guarantees, giving the EFSF a maximum lending capacity of EUR440bn.

France is the most exposed of the 'AAA' euro member states to a further intensification of the eurozone sovereign debt crisis. It provides EUR158.5bn of guarantees plus over-guarantees to the EFSF guarantee pool under the framework agreement.

When we revised France's rating Outlook, we noted that an increased likelihood that contingent liabilities arising from the crisis will be crystallised onto France's balance sheet, material slippage from fiscal targets, and a re-assessment of France's economic growth potential, could each trigger a rating downgrade. Conversely, economic and fiscal performance in line with our base case expectations, along with a resolution of the eurozone debt crisis, would be likely to result in a revision of the Outlook to Stable.

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Gandalf6900's picture


Ghordius's picture

Still FrAAAnce? 50% chance of downgrade in a year or two only? Ze horror, ze horror!

Ethics Gradient's picture

More like a 50% chance of downgrade on Friday night.

For a very merry Christmas!

Ghordius's picture

really nice handle, by the way, from the Culture novels ship names? Or an interesting statement?

yes, I would not be surprised if Fitch would turn back on the "one or two years" by Friday, it's not as if they have a reputation to lose!

Gunga's picture

 I just need the financial house of cards to hold together for like 3 more weeks. That'll give me time to close out my 401k,IRA etc and roll it into a nice little farm I have picked out.

Iconoclast's picture

Then Mosanto will come knocking...or the farm will be confiscated.. ;-)

Tense INDIAN's picture

fitch ...plz SHUT UP...I have huge LONG position

Dick Darlington's picture

But downgrades, esp if multinotch accompanied with neg outlook, are bullish in the zEuro-la la land.

Socrate's picture

Ah, nous sommes tous foutus. La France sans son tripple AAA c'est comme Paris sans sa Tour Eiffel.

Oh, we are all fscked up. France without its tripple AAA is like Paris without Eiffel tower. </sarc>

distopiandreamboy's picture

That explains why the futures are up

vxpatel's picture

futures are up because we live in such a wonderful society.

Chaffinch's picture

Futures are up because the choco ration has gone up again...

wandstrasse's picture

Isn't Fitch owned by French?

Dick Darlington's picture



Italy Industrial Orders s.a.   (MoM) -1,6%

Italy Industrial Orders n.s.a. (YoY) -4,8%

To sum up, all is well.


wandstrasse's picture

BREAKING! Rating agencies threaten to downgrade Germany because they might lose WW2... Further warn to downgrade the Roman Empire etc etc...

disabledvet's picture

It is not Spain or even Italy in my view but France that represents "ground zero" if this financial weapon of mass destruction goes off. It's hard to leave aside the haughty arrogance in the midst of a generalized systemic collapse of their banks followed by a surge in the polls for the Socialists. France represents both the beginning and the end for the EU...but not necessarily for the euro. Indeed I could forsee a euro area that forces France to go back to a (massively) devalued franc while Germany, Spain and Italy find a way to tough it out with the euro.

MiddleageThinninghair's picture

You know after watching the markets for a number of years and especially the last couple of years it just makes me think humans as a group are a pack of fools and certainly not the evolved beings we like to read about in literature.  Even though the markets are up to me it just continues to errode my sense of belief in governments in general but confirms why they don't pay attention to the public except once every 4 years where we choose one of two preselected candidates.  I'm surprized they had enough self control to kept the market pump to under 3%.  They are probably trying to change the technical charts so as to tell even the dimmest of technicians that it is all clear to buy everything and everyone.
I suppose this is the real reason for today's ramp session in the market?