EU Said To Weigh Extra Years For Irish Rescue Loans

The European Union is weighing whether to extend Ireland’s rescue loans by five years or more, buttressing the government’s efforts to become the first country to exit a bailout since the euro-region debt crisis began.

European Union finance ministers meeting in Brussels today agreed to ask bailout authorities to recommend the “best possible option” for helping Ireland and Portugal regain full market access as they near the end of their bailout programs.

“Both programmes are on track and performing well despite challenging macro-economic circumstances,” the ministers said in a statement, after discussing whether they would be “ready in principle” to considering adjusting the aid loan maturities.

For Ireland, five options are under consideration, two EU officials said on condition of anonymity because deliberations are still under way. Alternatives to a five year plus extension include taking no action at all, extending the loans by two-and-a-half years or five years, and re-profiling current loans so that more of them come due later without extending overall aid maturities, the officials said. The Irish Finance Ministry declined to comment on the specific options.

“There’s a willingness across all members to do something for Ireland and Portugal in this area,” Irish Finance Minister Michael Noonan told reporters today. “There are varying levels of difficulty which different countries have in positioning it.”

Bundling Decisions

Noonan mentioned five options, without discussing details, and said that other EU nations might need to seek approval from their parliaments depending on how debt extensions are structured. He said some nations might seek to bundle decisions on Ireland, Portugal and a new aid package for Cyprus in order to minimize their requests to national lawmakers.

Ireland’s five-year note yield fell 7 basis points to 2.74 percent at 12:41 p.m. in Dublin. The yield on the Irish bond maturing in October 2020 fell 9 basis points to 3.75 percent.

Prior to 2020, Ireland is scheduled to repay over 33 billion euros ($43 billion) in EU and IMF funding, with 6.7 billion euros due in 2015 followed by 6.1 billion euros in 2016, according to Ryan McGrath, an analyst with Cantor Fitzgerald Ireland.

“The maturity extension would ease funding pressure in the years immediately following the bailout exit,” he said.

Loan Relief

The EU may be able to commit to loan relief for Ireland and Portugal next month, Economic and Monetary Affairs Commissioner Olli Rehn told reporters in Brussels yesterday. “I hope we can conclude this work and give a strong message of confidence” when the ministers meet in Dublin in April, Rehn said.

If ministers agree today, the EU will call on the so-called troika of the European Commission, the European Central Bank and the International Monetary Fund to study options for helping Ireland and Portugal return to markets for funding.

The two nations received loans from two different European programs: the EU-wide European Financial Stabilization Mechanism and the euro-area’s temporary firewall, the European Financial Stability Facility. Ireland’s rescue loans have maturities ranging from five years to more than 20 years, Noonan said before yesterday’s talks.

Total Bailout

“Our ask is an extension of 15 years on average,” Noonan said. “We’ll see how that goes. I don’t think there’s a disposition to go that long.”

Ireland’s total bailout was 67.5 billion euros, including a 22.5 billion-euro loan from the EFSM, 17.7 billion euros from the EFSF and 4.8 billion euros in bilateral loans from the U.K., Sweden and Denmark. It received a further 22.5 billion euros from the IMF. The EFSM loans have a weighted average maturity of 12.4 years from the time they were drawn down, while the EFSF loans have a weighted average life of 11.7 years.

The IMF loans, which are not under discussion for altered terms, have a lifespan of 4.5 years to 10 years, with a weighted average term of 7.5 years. The bilateral loans also have a weighted average term of 7.5 years.

Ireland also is seeking the possibility of retroactive direct bank recapitalization from the euro area’s permanent firewall, the European Stability Mechanism, once such aid becomes available. Finance ministers are working toward a mid-year deadline for designing how the program might work.

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