So Why Did They Forget To Put EFSF On Watch Yesterday?

Posted by on Dec 6, 2011 in Uncategorized | No Comments

My guess is that EFSF is rated by the structured credit group and not the sovereign debt group (imagine the fights over fees on that potential behemoth). So when the press leaked the downgrades, the sovereign group rushed to get the details out, but the structured people in Europe had already gone home, so couldn’t come out with a statement on EFSF?

Bizarrely, it may actually become important that the original 3 deals were done under different docs (I’m not sure about the most recent issue). Those EFSF bonds were meant to have additional protections for bondholders. “Hold-backs” were part of their structure, so they weren’t supposed to lend all the money and had accounts set up to manage this extra collateral. Two Sunday’s ago, the EFSF group issued several statements. They mostly focused on the “future” (which we didn’t believe in at the time and wrote extensively about it and created the convoluted flow chart that was the EFSF), but they also released something about the existing bonds and changes to them.

I haven’t focused much on the existing issues, but if the original 3 (or 4) EFSF deals followed terms they were supposed to, and have kept those terms, they may actually offer some value, but that is a lot of “ifs” and would require some serious document reading. If they didn’t follow their own rules, and should have, it might be even more interesting.

In any case, EFSF and Leverage shouldn’t be used in the same sentence again.

EIB? I know even less about the EIB, but I find it hard to believe it should be put on watch as well. The economic reasons have to apply. The capital support from weakened members has to apply. Maybe they have made great, well secured loans, but somehow that seems like a stretch for an entity that seems like it would be crony capitalism personified.