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Moody's changes International Finance Facility for Immunisation's Aa1 rating outlook to stable from negative.

Summary: Moody's Investors Service has today affirmed the Aa1 long-term issuer

Moody's Investors Service has today affirmed the Aa1 long-term issuer, senior unsecured and senior unsecured MTN

ratings of the International Finance Facility for Immunisation (IFFIm)

and changed the outlook on all ratings to stable from negative. The

short-term issuer rating of IFFIm is also affirmed at Prime-1.

The key drivers of today's outlook change are the following:

1) Improvement in major European sovereign donors' creditworthiness

coupled with Moody's revised assessment of lower default correlation

that would be observed between euro area member states in the event of a

very severe crisis.

2) IFFIm's conservative liquidity and gearing policies will continue to

partially mitigate concentration risk among donors.

RATIONALE FOR THE CHANGE TO A STABLE OUTLOOK

-- FIRST DRIVER: IMPROVEMENT IN CREDIT STRENGTH OF DONORS AND CHANGE IN

DEFAULT CORRELATION ASSESSMENT

The main driver of the stable outlook is the improvement in the

creditworthiness among IFFIm's major sovereign donors, together with

Moody's view that the default correlation that would be observed between

euro area member states in the event of a very severe crisis has

diminished somewhat. IFFIm's rating is closely linked to the

creditworthiness of its sovereign donors because its revenue structure is

reliant on the receipt of donors' pledges. Unlike MDBs, IFFIm does not

have paid-in capital. Paid-in capital allows MDBs to potentially carry

sufficient intrinsic financial strength to allow their ratings to exceed

the ratings of their sovereign shareholders. Consequently, the main

factor driving IFFIm's creditworthiness is the strength of its sovereign

donors' support, which in turn affects IFFIm's market access.

Moody's has previously cited the concentration of donor pledges, and in

particular the concentration risk posed by the expected high default

correlation among three of IFFIm's euro area donors (France, Italy and

Spain -- which respectively pledge 26.8%, 8.6% and 3.0% of donor

payments) as a driver of the negative outlook on IFFIm's rating, given

the negative outlooks on those donors' ratings at the time of the last

action. However, since IFFIm's downgrade to Aa1 from Aaa and the

affirmation of the negative outlook in March 2013, Moody's has upgraded

the rating of Spain to Baa2 from Baa3 with a positive outlook and changed

the rating outlooks of Italy (Baa2) and the Netherlands (Aaa) to stable

from negative. (The United Kingdom, IFFIm's largest donor with over 50%

of total remaining pledges, is rated Aa1 stable.) The outlook on France's

rating remains negative. However, Moody's has also lowered its assessment

of default correlation among euro area states even in the event of a very

severe crisis involving the defaults of even the strongest member states

of the monetary union.

It has done so for two reasons. First, while the credit pressures facing

countries of the monetary union share common characteristics, there also

exist some idiosyncratic elements that drive the rating trajectories of

individual countries and which would imply a lower mutuality of risk than

previously assumed. In particular, the currently negative outlook on

France's rating is driven by Moody's view of domestic vulnerabilities,

which do not directly affect the creditworthiness of other euro area

member states. Second, measures put in place since the start of the euro

area crisis should improve the authorities' ability to manage contagion

within the system, even that arising from the default of a very large

euro area member.

Taking these factors together -- the improvement in and greater stability

of donor creditworthiness and the lower default correlation assumption

-- Moody's believes that IFFIm's rating would be less immediately

affected were any one of its euro area donors to be downgraded, and has

accordingly stabilised the outlook.

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Publication:EMBIN (Emerging Markets Business Information News)
Date:Aug 7, 2014
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