Fitch Affirms European Investment Fund at 'AAA'; Outlook Stable

Thu Jun 27, 2013 12:46pm EDT

LONDON, June 27 (Fitch) Fitch Ratings has affirmed the European Investment Fund's (EIF) Long-term Issuer Default Rating (IDR) at 'AAA' with a Stable Outlook and Short-term IDR at 'F1+'. KEY RATING DRIVERS The affirmation and Stable Outlook reflect the following key rating factors: - EIF's ratings are driven primarily by intrinsic factors rather than support. - Capitalisation is strong and the fund does not have debt on its balance sheet. Equity was 80.5% of total assets at end-2012, and Fitch's ratio of usable to required capital was at a comfortable 9.2x at end-2012. Although not subject to any banking regulation regime, the EIF abides by its own stringent concentration, liquidity and capital rules. - Liquidity is very strong due to the large portfolio of mainly sovereign and sovereign-guaranteed assets, and also due to the absence of debt obligations. However, Fitch notes that the credit risk and performance of EIF's liquidity portfolio has been adversely affected by the eurozone sovereign debt crisis and the low interest rate environment. - EIF's sound risk management framework is a key support for the rating. Well-balanced and broadly diversified portfolios across the private equity and guarantees businesses smooth out disbursements and payments, while mitigating the intrinsically risky nature of the SME-focused operations. - The presence of strong shareholders also favourably impacts the rating. At end-2012, the EIF was 62.1% owned by the European Investment Bank (EIB) and 30% owned by the European Council (EC), with the rest accounted for by 24 financial institutions. Shareholders have paid in 20% of subscribed capital and the EIF general meeting of shareholders may require payment of the subscribed but not paid in capital, to the extent required for the EIF to meet its liabilities towards its creditors. - The significant role of the EIF in meeting the EIB's and the EC's strategic objectives to provide countercyclical support to SMEs across EU countries enhances the likelihood of the EIF being supported if needed. RATING SENSITIVITIES The Stable Outlook reflects Fitch's assessment that downside risks to the 'AAA' rating are currently not material. In particular, the EIF's ratings would be resilient to a limited downgrade of its main shareholders. Nonetheless, the following risk factor may result in a negative rating action: - A material increase in guarantee calls, a rise in impaired private equity investments and fair value adjustments on treasury assets and private equity investments, leading to a pronounced erosion of EIF's equity cushion. KEY ASSUMPTIONS The ratings and Outlooks are sensitive to a number of assumptions. - Callable capital would be provided by the EIF's shareholders on a timely basis, if needed. - The strategic relationship between the EIF and the EIB and the European Council remains strong. - The eurozone remains intact. Contact: Primary Analyst Eugene Chiam Research Analyst +44 20 3530 1512 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Amelie Roux Director +33 1 44 29 92 82 Committee Chairperson Richard Fox Senior Director +44 20 3530 1444 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, 'Rating Multilateral Development Banks', dated 23 May 2012, are available at www.fitchratings.com. Applicable Criteria andALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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