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EFSF first bond issue - 43 Billion Euros of Orders From 500 Investors

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(25 January 2011) The debut bond from the European Financial Stability Facility has attracted 43 billion euros ($58 billion), of orders to help fund Ireland’s bailout, allowing it to pay a lower interest rate, with price guidance at the tight end of the initial range and order books more than eight times oversubscribed. The EFSF’s 5 billion euros of five-year notes attracted orders from about 500 investors, according to insiders of the sale. 

Final price guidance on the €5 billion ($6.82 billion) bond maturing in July 2016 was set at six basis points over midswaps, one of the banks running the sale said Tuesday. This is at the tight end of initial price guidance set between six and eight basis points over midswaps. The midswap rate is the standard by which new bonds denominated in euros are measured. The benchmark rate is derived from the cost of swapping fixed- and floating-rate interest payments.

"By all accounts investors are falling over themselves to get their hands on the EFSF bond," said ING rates strategist Padhraic Garvey in a note. "The indications are that there is a strong international support for the new issuing vehicle. This of course makes sense as it is in everyone's interest for the first EFSF bond to be a success."

The EFSF transaction is seen as a key test of investor support for Europe's new sovereign bailout vehicle. It comes after the European Union priced its debut issue, also destined for Ireland, Jan. 5, from its European Financial Stabilization Mechanism. The €5 billion bond from the EU priced at 0.12 percentage point over midswaps before trading lower in the secondary market.

The European Financial Stability Facility (EFSF) announced on the 17th this month that Citi, HSBC, and Société Générale are mandated as joint lead managers for its inaugural issue. The three institutions were chosen from the 44 banks that make up the EFSF Market Group. Klaus Regling, CEO of EFSF highlighted:

“the first EFSF issue is an important transaction for markets and for the euro zone. I am confident that the strong position of these highly regarded global institutions in the market will ensure the success of our first issue, helping to restore stability to the sovereign bond markets and protect the euro”. Christophe Frankel, CFO and Deputy CEO added, “the lead managers were selected following a rigorous selection process based on comprehensive and exhaustive analysis and formal interviews”.

The €5 billion benchmark issue is part of the financial assistance programme for Ireland. Over 2011 and 2012 EFSF will raise up to €26.5 billion in the capital markets as part of the Irish support programme which will include two further benchmark bonds of €3-5 billion per transaction in the current year.

On the 19th January, all three major credit rating agencies assigned the best possible credit rating - Standard & Poor’s “AAA”, Moody’s “Aaa” and Fitch Ratings “AAA” - to the European Financial Stability Facility’s (EFSF) bond issuance programme.

According to the three CRAs, the top rating reflects the strong shareholder support and credit enhancements such as a 120% over-guarantee and cash buffer. Following the announcement by the rating agencies, Klaus Regling, EFSF’s CEO commented

“we are very pleased with the confirmation of the top credit ratings from all three agencies which underlines the solidity of the EFSF name. We expect investor interest to be high as our debut issue provides a good opportunity for investors to diversify into a new supranational and liquid asset”.

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