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Second €4.75 billion bond issued this week to support EU´s assistance packages

Commission Européenne - MEMO/11/344   25/05/2011

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MEMO/11/344

Brussels, 25 May 2011

Second €4.75 billion bond issued this week to support EU´s assistance packages

The European Commission, on behalf of the European Union (EU), today issued a €4.75 billion bond with a 5 year maturity to fund a further disbursement of the assistance package to Portugal. The proceeds will be provided as a loan under the European Financial Stabilisation Mechanism (EFSM), to be disbursed to Portugal on 1 June 2011. This was the second EU benchmark bond issue of this week, after a placement on the day before of a €4.75 billion with 10 years maturity, issued in support of Ireland and Portugal. The amounts raised are determined by the loan requirements.

Favourable market conditions and the extremely good investor demand for yesterday´s 10 year bond allowed placing these two bonds in quick succession, completing the announced transactions for the second quarter of 2011. Together with the disbursements by the IMF, disbursements to Ireland and Portugal resulting from the two bond issues will be made next week and will provide a comfortable liquidity situation in those member states in line with the country programme objectives.

Today's €4.75 billion benchmark matures on 3 June 2016, pays a coupon of 2.75% and was priced at mid-swaps flat (i.e. 0 basis points). Investor interest remained strong with an extraordinary quality of the book, coming overwhelming from real money investors across the globe. Books were closed at midday, reaching more than €10 billion of orders.

Strong investor demand for today's 5 year issue came from across Europe - in particular from the UK (17%), Germany/Austria (14%), the Nordics (12%), France (11%) - and from Asia (16%), the Middle East (7%) and the Americas (5%). In terms of investor type, Central Banks/Official Institutions (36%) were the most important, followed by banks (32%) and asset managers (26%).

Joint bookrunners were Deutsche Bank, HSBC, Société Générale CIB and UBS Investment Bank. Co-leads were BNP Paribas, Commerzbank, Citi, Crédit Agricole CIB, Credit Suisse, DZ Bank, Goldman Sachs and J. P. Morgan.

Recent issuances of €9.5 billion and the €9.6 billion from the previous benchmark issuances in January and March amount to a total placement of €19.1 billion in 2011 so far. These funds have been used by the EU to provide assistance under the EFSM as well as under the Balance of Payments (BoP) loan programmes. Two further benchmark bonds are planned for the later second half of 2011.

Background

Transaction overview

EU € 4.75 billion benchmark, due 3 June 2016

Coupon: 2.75%, mid-swaps flat

Issued: 25 May 2011

Settlement date: 1 June 2011 (disbursement of € 4.75 bn to Portugal)

Distribution by country/region

Distribution by investor type

EU € 4.75 billion benchmark, due 4 June 2021

Coupon: 3.5%, mid-swaps +14 basis points

Issued: 24 May 2011

Settlement date: 31 May 2011 (disbursement of € 3 bn to Ireland, €1.75 bn to Portugal)

Distribution by country Distribution by investor type

Assistance package for Ireland

Ireland receives, as part of the joint financial support package agreed in December 2010, loans under the European Financial Stabilisation Mechanism (EFSM) and also from the European Financial Stability Facility (EFSF), the International Monetary Fund (IMF) as well as bilateral loans. The agreed assistance amount to €67.5 billion over 3 years, EFSM, EFSF (including bilateral loans) and IMF are contributing each with €22.5 billion.

Under the EFSM, three disbursements have so far been made to Ireland: €5 billion on 12 January 2011, €3.4 billion on 24 March 2011, and the recent €3 billion, due for 31 May 2011.

Assistance package for Portugal

Following the formal request for financial assistance made on 7 April 2011 by the Portuguese authorities, the terms and conditions of the financial assistance package were agreed by the Eurogroup and the EU's Council of Economics and Finance Ministers on 17 May. The financial package will cover Portugal’s financing needs of up to €78 billion. The European Union (EU), through the use of the European Financial Stabilisation Mechanism (EFSM) and the European Financial Stability Facility (EFSF) will both provide up to €26 billion each to be disbursed over 3 years. Further support will be made available through the International Monetary Fund (IMF) for up to €26 billion, as approved by the IMF Executive Board on 20 May.

Under the EFSM, the first two disbursements to Portugal are currently processed: € 1.75 billion due 31 May 2011 and € 4.75 billion due on 1 June 2011.

The EU as a borrower

European Union is rated Aaa/AAA/AAA by Moody's, Standard &Poor's and Fitch.

The European Commission is empowered to contract borrowings on the behalf of the EU for the purpose of funding loans made under the European Financial Stabilisation Mechanism (EFSM). The EFSM is an EU Treaty-based mechanism, covering all EU Member States. Under the EFSM, the EU can borrow up to €60 billion to on-lend to any EU Member State. EFSM is currently activated for the assistance of Ireland and Portugal.

In addition, under the Balance of Payments (BoP) facility, support is available to Member States which have not yet adopted the euro. Also under the BoP Regulation, the European Commission is empowered to raise funds up to €50 billion on behalf of the EU and on-lend to the beneficiary countries. Currently, Romania, Latvia and Hungary have benefited from the BoP facility, with disbursements totalling € 13.3 billion.

Further information on the EU as a borrower is available on the website:

http://ec.europa.eu/economy_finance/eu_borrower/


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