EFSF Rescue Fund Said to Revive Bond Sale as Crisis Deepens
Nov. 7 (Bloomberg) -- The European Financial Stability Facility revived the 3 billion-euro ($4.1 billion) bond sale it pulled last week even as the region's sovereign crisis deepened.
The bailout fund will price the bonds due February 2022 to yield 104 basis points more than the benchmark swap rate, according to two people with knowledge of the transaction. The proceeds will be used to help finance the rescue of Ireland.
The EFSF postponed the bond sale on Nov. 2 amid market turmoil prompted by Greek Prime Minister George Papandreou's call for a referendum on the rescue pact for his country. The euro-region's woes have deepened since then, with Papandreou signalling he'll step down in favor of a national unity government, while concerns about Italy's creditworthiness sent its bond yields soaring to records.
"The EFSF is paying the price for being a relatively new issuer, and for the increasing concerns about a sustainable solution for the peripheral economies," said Ivan Comerma, head of treasury and capital markets at Banc Internacional d'Andorra.
EFSF spokesman Christof Roche said order taking for the transaction has closed, without providing further details. He earlier said orders for the new issue exceeded 2 billion euros after an hour.
The Luxembourg-based fund, which was established in June 2010, has already raised 13 billion euros from three bond issues this year, according to data compiled by Bloomberg. Barclays Capital, Credit Agricole CIB and JPMorgan Chase & Co. are managing today's sale.
Underperforming
The EFSF's existing notes have underperformed European benchmark debt, with the extra yield over governments on its 3.375 percent bonds due in 2021 widening to 166 basis points, the most since the notes were sold in June, Bloomberg Bond Trader prices show. Those bonds were initially priced to yield 17 basis points, or 0.17 percentage point, more than the swap rate.
The relatively high spread on the new issue "is a complete level-changer, a completely new world for the EFSF," said David Schnautz, a fixed-income strategist at Commerzbank AG in London. "This will be the new reference point" for any future 10-year deal, he said.
The EFSF is selling the notes as European finance ministers prepare to meet in Brussels today to discuss bulking up the fund, amid uncertainty as to how they'll boost its spending power to 1 trillion euros.
"We still don't have the details as to what the EFSF mechanism will look like," said Richard McGuire, a senior fixed-income strategist at Rabobank International in London. "You're being asked to invest in something that could change shape relatively radically."
To contact the reporters on this story: Ben Martin in London at bmartin38@bloomberg.net Esteban Duarte in Madrid at eduarterubia@bloomberg.net
To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net
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