EFSF Set to Launch New Cyprus-Backed Bond

Bank vault door
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The European Financial Stability Facility is set to launch a new five-year benchmark bond on Tuesday that remains part-guaranteed by bailed-out Cyprus.

The euro rescue fund, rated Aa1/AA /AAA, said in an emailed statement on Monday that it has received a request from Cyprus to step out as a guarantor,but added that this required the approval of the remaining guarantors, who are not set to meet until April 25.

"The stepping out will only become effective upon approval by the EWG. If the Cyprus stepping out request is approved, such stepping out will not affect the liability of Cyprus as a Guarantor under Guarantees already in existence(including the above mentioned note issue by the EFSF)," said the EFSF.

In late March, the EFSF tapped 1 billion euros ($1.3 billion) of its 3 year bond, with Cyprus on the verge of accepting a bailout.

As Cyprus is only on the hook for 1.5 billion in guarantee commitments of debt issued by the EFSF, worlds away from the 211 billion euro committed by Germany, there was little push back from investors.

However, this will be the first new bond issued which still counts Cyprus as a guarantor, and, if Cyprus subsequently drops out, it, like all EFSF's outstanding bonds, will not be able to be upsized.

This limits the potential for further liquidity in the bond, which could putoff some investors.

Greece, Portugal and Ireland all stepped out as EFSF guarantors when they entered bailout programs, and their share of commitments was redistributed among EFSF's other shareholders.

In the Works

BNP Paribas, Goldman Sachs International and HSBC have been mandated for the new deal, and are marketing the bonds to investors with initial price thoughts of mid-swaps plus 12bp area.

The EFSF plans to open books on the new deal on Tuesday morning, said one lead bank.

The EFSF has raised 17 billion in the year to date, via three-, five- and seven-year benchmark issues and taps of three-, 10- and 25-year bonds.

It has a funding program of 58 billion euros in 2013, with a second quarter funding target of 16.5 billion euros.