Moody's changes International Finance Facility for Immunisation's Aa1 rating outlook to stable from negative.
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.
Copyright EMBIN (Emerging Markets Business Information News) Provided by SyndiGate Media Inc. ( Syndigate.info ).
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|Publication:||EMBIN (Emerging Markets Business Information News)|
|Date:||Aug 7, 2014|
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