Fitch affirms IFFIm at 'AAA'; outlook stable

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Fitch Ratings has affirmed the International Finance Facility for Immunisation's rating at 'AAA' and the Outlook is stable

London, 18 November 2010 (Fitch Ratings) - Fitch Ratings has affirmed the International Finance Facility for Immunisation's (IFFIm) Long-term Issuer Default Rating (IDR) at 'AAA', and its Short-term IDR at 'F1+'. The Outlook for the Long-term IDR is Stable.

Highly rated donors

The ratings of IFFIm are entirely based upon the grant commitments of its most highly rated donors. IFFIm's donors include the government of the UK ('AAA'), France ('AAA'), Italy ('AA-'), the Netherlands ('AAA'), South Africa ('BBB+'), Spain ('AA+'), Sweden ('AAA') and Norway ('AAA').

Support is strong, due to IFFIm's role in supporting immunisation and vaccine procurement programmes through the Global Alliance for Vaccines and Immunisation (GAVI), the high credit quality of donors and the legally binding nature of donors' commitments.

GAVI

Support is strong, due to IFFIm's role in supporting immunisation and vaccine procurement programmes through the Global Alliance for Vaccines and Immunisation (GAVI), the high credit quality of donors and the legally binding nature of donors' commitments.

Fitch Ratings on IFFIm's Rating and Outlook

IFFIm is different from other supranational development institutions in the sense that it does not collect revenues on a recurring basis. Rather, it raises funds on the financial markets, which are then disbursed as grants to GAVI, a global health partnership committed to improving access to immunisation for children in impoverished countries.

IFFIm's immunisation and vaccine procurement programmes have enjoyed strong take-up and support among the development community, as illustrated by the Netherlands' decision to participate in IFFIm in 2009. In 2010, the UK and Norway announced an increase in their contribution of USD396m and USD237m respectively, bringing total pledges to USD 5,979m as of end-October 2010.

IFFIm issues bonds in the capital markets

IFFIm funds these programmes by issuing bonds in the capital markets backed by grant commitments from donors disbursed on an up to 20 year period. Donors and IFFIm consider the grant agreements to be legally binding and, in Fitch's opinion, repudiation of these commitments would impose severe reputational damage.

However, sovereign donors will reduce the value of the grants they provide IFFIm by a predetermined percentage if one or more of the 70 countries eligible to receive IFFIm funded GAVI immunisation programmes enters into "protracted arrears" with the IMF (i.e. more than six months arrears on scheduled repayments).

IFFIm's liquidity, credit and market risks are being managed effectively by the World Bank ('AAA'), IFFIm's designated treasury manager. IFFIm is exposed to two sources of credit risk: recipient countries defaulting to IMF and donors missing grant payments. These are factored into the risk factor used to discount the future grant payments and compute their NPV.

In order to limit indebtedness and maintain its 'AAA' ratings, IFFIm has committed to maintain a ratio of net debt -defined as outstanding bond issues minus cash holdings - to the NPV of pledges (the 'gearing ratio') below a threshold which is reviewed on a regular basis.

At end-September 2010, the limit for gearing ratio stood at 69.7%, while the actual ratio was 39.3%. Although it has increased markedly since 2006 (20.8%), as IFFIm' indebtedness increases to fund the vaccine programmes, this still leaves comfortable headroom for a further increase in debt.

France and the UK

Given the importance of France and the UK, which together account for 78.6% of the total agreed pledges, Fitch has linked IFFIm's credit rating directly to the UK and France's sovereign rating. If either the UK or France's sovereign rating was downgraded from 'AAA', this would prompt a review of IFFIm's rating and would, all else equal, likely result in a downgrade.

The other key rating factor is the level of indebtedness of IFFIm relative to the pledged grant, which is measured through the gearing ratio. According to Fitch's estimates, a gearing ratio limit of 70% is consistent with a 'AAA' rating.

The rating also encapsulates the conservative liquidity policy of the institution: liquid assets must cover debt service for at least 12 months.

IFFIm is a multilateral development financing institution supported by sovereign donors. Its objective is to facilitate the accelerated financing of large-scale immunisation programmes in 70 developing countries by issuing debt in the international capital markets backed by multiyear grant pledges from sovereign donor governments. It is incorporated in the UK with a charity status.

Fitch adopted a bespoke analytical approach addressing the factors outlined in the text above and drawing on elements of the following criteria: 'Sovereign Rating Methodology', dated 13 August 2010 and 'Rating multilateral Development Banks and Other Supranationals', dated 18 March 2010, which are available at FitchRatings.

Contacts
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Eric Paget-Blanc, Senior Director
Fitch Ratings France
Office: +33 1 44 299133

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Amelie Roux, Director
Fitch Ratings France
Office: +33 1 44 299282

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David Riley, Group Managing Director
Fitch Ratings
+44 207 417 4332

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