24 November 2012

Note on the implications of a Greek Interest Deferral in the Programme
Authorised Amount of EFSF
1. Background
Under the initial setup of EFSF, funding instruments were matched by guarantees and the cash
reserves. Loans were funded back to back with bonds. Under the enlarged EFSF, Member States
stepped up their guarantee amounts and the degree of over-guarantee. Therefore the cash reserves
became unnecessary. In parallel the diversified funding strategy was introduced, which allows EFSF
to fund a pool from which loans are disbursed.

2. Programme Authorised Amount
The Programme authorized amount determines the maximum amount EFSF is authorized to fund
under the deeds of guarantee. The current Programme Issuance Authorized amount is set to 241
billion Euros and it will be impacted by the current programmes outstanding for Portugal, Ireland
and Greece:
Table 1 – EFSF Commitments

Commitment Amount

Description
144.60 Greece
26.10 Portugal
17.70 Ireland
188.40 Total Committed EFSF (after Spanish transfer)

When interest rates are deferred for Greece, these amounts will have to be financed by EFSF.
Accordingly the Programme Authorized Amount needed in this setup will be affected by future
interest rates and cannot be predicted with certainty. Under a scenario of an interest deferral for 10
years and an expected interest rate of 3%, the additional financing required would amount to 43.5
billion. Correspondingly the available headroom remaining under the Programme Authorized
Amount taking into account existing commitments would be the following:
Table 2 – Available Headroom under EFSF commitments (static/excluding Liquidity Requirements)

Commitment Amount

Description
241.00 Programme Issuance Authorized Amount
188.4 Total Committed EFSF (after Spanish transfer)
52.60 Headroom
43.8 Forecasted Greek Interest Deferral 10 years 3%/flat scenario
8.80 Available Headroom

This computation does not yet include the cash reserves and the redemption of existing loans. The
chart below therefore outlines the scenario of a Greek programme with an interest deferral and 15
years extension assuming a flat interest rate of 3% and interest deferral over 10 years with
amortization of the accumulated balance in a constant amortization profile over the consequent 20
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24 November 2012

years) taking into account the amortization profile for Portugal and Ireland, the cash reserves and
the liquidity buffer requirements.
Under this more precise computation, shown in Chart 1 below, the lowest residual Programme
Authorised Amount with 15 billion remaining capacity available would occur in year 2020. This
estimate would diminish to 9 billion for an interest rate of 3.5% and 3 billion with an interest rate
of 4%.
According to these scenarios, higher interest rates during the deferral period, increases of the
programme amounts or other modifications of loans which would prolong the repayment profile
before 2020 would imply that the Programme Authorized Amounts may have to be raised in the
course of the coming years.
Chart 1 – Amortization Profiles (Base Case)

Chart 2 – Residual Programme Authorised Amount (Base Case, 3% interest rate)

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