All material subject to strictly enforced copyright laws. © 2022 Euromoney Institutional Investor PLC group

What price success for the EFSF?

The EFSF is over the hump of what could prove a tough task of raising €11bn in the fourth quarter. But did it get the pricing right with its latest five year?

The European Financial Stability Facility (EFSF) is no stranger to struggling trades. Twice since last November it has priced 10 year euro deals. One shut down the entire SSA market and took two attempts to issue, while the last was accused of being too rich at the top of a rally and did not sell out.

This week, in hunting for size, it lured €11bn of orders to a five year trade that saw a print of €5.9bn. But no matter what the objective, there is clear evidence of a mispricing here.

That does nothing to enhance its reputation as it looks to come of age as a mature SSA borrower. It is a shame because the market needs to know that the EFSF and its partner, the European Stability Mechanism (ESM), can lead by example when bringing new issues and help provide the stability their names imply.

The EFSF can argue that it had to raise a large amount of money — this is undeniable. It can also say, as bankers sticking up for it often do, that it is a borrower that by its very nature only wades into difficult markets. One cannot expect seamless transactions every time.

It can also fairly claim that those for whom it is raising funds are still making a cost saving on where they could borrow money themselves, if indeed they could borrow at all.

But the EFSF must aim higher than merely being the makeshift lifeboat that it was launched as. It needs to be a stable and secure ocean-going craft and must not risk leaving a wake so choppy that other SSA credits suffer.

It must also strive for the tightest pricing — but a bond that has its guidance tightened by 2bp and still attracts a book of €11bn, as this latest one did, would have a hard time making that claim. Bankers away from the deal said that the pricing of 23bp over mid-swaps offered a chunky 7bp new issue premium.

The EFSF is not a borrower that should try to squeeze every last basis point out of every deal — just witness its 10 year trade in the summer. But at a time when most borrowers are near to completing their funding tasks, it would have been a good idea to try for something tighter to its own curve. The SSA market has not seen such a premium for some time.

Everybody wants and needs the EFSF to succeed, especially now that it is likely to be joined by the ESM. As it nears its two year anniversary, it must start to fit in with the consistency that the public sector market expects and often achieves.

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree