A number of supranational entities, owned by several sovereign governments, issue debt on capital markets to finance their activities. In this short video, Tim explains the segment of sovereign states, supranational entities and agencies (SSAs) in terms of debt capital markets. The SSA universe is considered highly secure for its unique status granted by law, as well as a wide range of explicit and implied warranties that protect it. This so-called « special status » refers to the link between a supranational issuer and its international shareholders or a group of states. The joint financing nature of supranationals provides a higher level of credit reliability and quality, resulting in stronger credit ratings. In the case of an agency or sub-sovereign issuer, the SSA issuer is backed by its sovereign, which has other implications for the security of the bonds. Guarantee structures that are particularly important for SSA issuers can be divided into five main groups. Definition: SSA is an acronym for Sovereigns, Supranationals and Agencies (SSAs) and sometimes Supra, Sub-Sovereigns and Agencies (SSAs). Given the increased risk aversion, investors should welcome the EU`s AAA-rated supranational debt.
It appears that EU debt is actually traded on Bunds through exposure to southern and eastern member states, even taking into account the ESG aspect, which usually leads to lower yields, as well as additional liquidity. This demand for EU coronabonds can boost demand for euros in the medium term, which is further exacerbated by the narrowing of the interest rate differential between EMU and the US. All this, combined with a relatively attractive newly created fiscal union, can contribute to a more positive view of the euro as a reserve currency. The range of guarantees varies depending on the jurisdiction and market size in each country. For example, Germany has different guarantee schemes as it receives the largest number and volume of European SSA emissions. German borrowers are entitled to direct guarantees from sub-states to municipalities and SoFFIN (Financial Market Stabilization Fund). In addition, there is a basic support scheme for states with lower tax production capacity, the Financial Equalisation Scheme. This system of State guarantees that States allocate financial resources in proportion to financial obligations. Many other types of guarantees ensure that the credibility and liquidity of the SSA market in Germany is maintained, such as the Anstaltslast maintenance obligation and the legal liability of the guarantor. Another particularly notable country that has special guarantees is France.
In France, SSA borrowers are backed by direct state guarantees that are not explicit, as UNEDIC does. SSA issuers, which have obtained the status of Public Establishments (EPIC) or National Public Establishment of an Administrative Nature (EPA), are wholly owned and controlled by the French government. This close relationship is similar to that of « explicit issuance » in that the issuer does not go bankrupt or lose assets if obligations to creditors are not met; However, the creditor must seek a court order to recover the amounts due, which affects the speed of payments until the court renders a decision. The issuer landscape consists of international institutions with different financing needs, such as development banks, infrastructure developers, export creditors, shipping companies, etc. What these institutions generally have in common is that they are entrusted with social or economic policy initiatives. The structure of the issuer could be divided into three different parts, as the name suggests: supranational, sub-sovereign and agency. Unlike most EU countries, supranational European debt is usually issued through a syndicated transaction instead of a spot auction. This is a specific agreement between a group of investment banks (brokers) and the issuer to purchase securities at a pre-agreed price, thereby ensuring the increase in the total amount.
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