The European Commission, on behalf of the European Union, issued bonds worth 5 Billion under the European Financial Stability Mechanism (EFSM) to finance the first tranche of the EU/IMF financial support agreed for Ireland last December.
Under the EFSM the EU can borrow up to €60 bn to on-lend to any EU Member State, whereas under the Balance of Payments (“BoP”) facility, support is available only to Member States which have not yet adopted the EUR. Aaaa/AAA/AAA by Moody's, S&P and Fitch.
He resulting interest rate of the loan to Ireland will be 5.51% composed of the cost of borrowing for the EU at 2.59% plus a margin of 2.925% as decided by the Council on 7 December 2010. This margin goes back to the EU Budget and is distributed to the EU 27 MS at the end of each financial year. The Commission does not charge any fees or keep any margin for its own use. The funds will be disbursed to Ireland on 12 January (five business days settlement).
According to EU sources, the investor interest on the bond were very strong and it was oversubscribed by more than 3 times within an hour of the bonds being issued.
In the context of the EFSM and based on the existing financial support programme to Ireland, the EU's funding program in 2011 could reach up to €17.6 bn raised through benchmark transactions. There will also be up to €1.5 bn under the BoP facility to finance commitments to Romania.
Source: www.egovmonitor.com
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