Peter Mathews (Dublin South, Fine Gael)
Link to this: Individually | In context

Question 73: To ask the Minister for Finance the interest rates paid on each drawdown from the European Financial Stability Facility and European Financial Stabilisation Mechanism; the cost to the EFSF and EFSM of raising funds for each of these drawdowns on the open market; and if he will make a statement on the matter. [19079/11]

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context

To date, Ireland's nominal borrowings from the European Financial Stabilisation Mechanism and the European Financial Stability Facility under the EU-IMF Programme amount to €15.6 billion. Details of these loans, and the yields on the corresponding bonds issued by the EFSM and the EFSF, as supplied by the NTMA to my Department, are set out in the table:

1. This is the loan amount. The disbursement made available to the Exchequer from the EFSF is €3.592 billion after credit enhancement measures. This credit enhancement is to ensure that the EFSF retains its top AAA credit rating and, thereby, minimizes the cost of funds it borrows. Under the only EFSF loan to Ireland to date, €0.6 billion was retained thereby reducing the cash available to Ireland to €3.592 billion. The retained amount is the present value of the margin of 247 basis points over the life of the loan.

2. This takes account of the margins for EFSF and EFSM loans, along with the cost of service fees and, in the case of the EFSF, credit enhancement measures (see Note 2 below.)

Note 1: EFSM loans are priced on the basis of the borrowing rate on the bonds sold by the European Commission plus a margin of 292.5 basis points. The total interest costs also include issuances costs incurred by the Commission.

Note 2: The interest rate on EFSF loans is calculated as the borrowing rate payable by the EFSF on the bonds it has sold, plus a margin of 247 basis points. However, in its current form, the EFSF is required to undertake a number of credit enhancement measures to ensure it maintains the highest possible rating from the credit rating agencies. These measures include a Loan Specific Cash Buffer and the prepayment of the margin due on the loan. Under the Loan Specific Cash Buffer measure, the EFSF retains and invests a portion of monies it raises from the bonds it has issued to fund a specific loan. The borrower has to pay the difference between the yield on the bond issued and the return earned by the EFSF from its investment of this money. The prepayment of the margin of 247 basis points is done on a net present value basis. Accordingly, the interest rate payable by the borrower over the term of the loan only relates to cost of funds borne by the EFSF. This structure is unwieldy and agreement has been reached to amend it, including the pricing mechanism, and this will end the requirement for a Loan Specific Cash Buffer and the prepayment of the entire margin. Legislation is being prepared for the Oireachtas to ratify these amendments.