The (P)Aa1/(P)Prime-1 ratings are based on the following factors:

(i) The ESM's anticipated low leverage: the ESM has a maximum lending capacity of EUR500 billion, which is backed by subscribed capital of EUR700 billion.

(ii) The creditworthiness of the ESM's members which are also the euro area member states: the ESM has a weighted median shareholder rating of Aa1 (changed from Aaa further to the downgrade of France's government bond rating to Aa1).

(iii) The sound liquidity and capital management policy, which benefits from an Early Warning System (EWS) that ensures that funds will be available on time.

(iv) The ESM's preferred creditor status.

The ESM's purpose is to provide an inter-governmental support mechanism which extends financial assistance to members that are either unable to access the capital markets, or able to do so only at very high interest rates.

RATINGS RATIONALE

The first key rating factor underlying Moody's decision to assign a (P)Aa1/(P)P-1 ratings to the ESM debt issuance programme relates to its anticipated low leverage. The ESM has a lending capacity (both loans extended to and purchases of securities issued by supported member states) of EUR500 billion and subscribed capital of EUR700 billion (consisting of EUR80 billion of paid-in capital and EUR620 billion of callable capital). If the ESM's capital is reduced (e.g., due to losses resulting from a borrower default), the leverage ratio -- defined as lending capacity/subscribed capital which must not exceed 71% -- would automatically limit the lending capacity and thereby stabilise the structure of the ESM funding.

The second key rating factor underpinning the (P)Aa1/(P) P-1 ratings is that the ESM's shareholders are the euro area's member states, which provide capital to the ESM according to the same capital key that is applied to the European Central Bank (ECB). The ESM therefore benefits from the very high credit quality of its shareholders and the very high likelihood that they will be able to comply with their capital-related obligations. The current capital key-weighted median rating is Aa1, given that the two main member states in terms of their capital contribution, Germany and France, hold a Aaa rating and a Aa1 rating, respectively.

The third key rating factor underlying the provisional ratings assigned today is the ESM's strong liquidity and capital management policy. A credit-enhancing feature is the ESM's Early Warning System (EWS) which, by providing an assessment of borrowers' repayment capacity well in advance of the repayment date, ensures that capital calls can be made and implemented well in advance of any payment shortfall. The ESM Treaty places a legal obligation on the ESM's Managing Director to call capital if needed, without requiring approval by the Board of Governors or the Board of Directors. With respect to its capital management policy, the ESM invests in liquid Aa2 or higher rated instruments, mainly government securities or equivalent.

The fourth key rating factor is the ESM's preferred creditor status that is junior only to that of the International Monetary Fund (IMF). This status differentiates the ESM from its predecessor entity, the European Financial Stability Facility (EFSF), which ranks pari-passu with senior unsecured bondholders.

RATIONALE FOR NEGATIVE OUTLOOK

The negative outlook on the ESM's provisional long-term rating reflects the negative outlooks on the ESM member states that have significant capital contribution keys and high ratings. Specifically, the Aaa ratings of Germany (which holds a 27.1% share in the subscribed capital) and the Netherlands (5.7%), as well as the Aa1 rating of France (20.4%) all have negative outlooks.

WHAT COULD MOVE RATINGS UP/DOWN

Risks that would negatively affect the creditworthiness of the ESM -- leading to a potential downgrade of the ESM's provisional debt ratings -- would include a deterioration in the creditworthiness of the participating euro area member states (as reflected by a change in Moody's ratings for these states). In this context, the ESM's rating is sensitive to changes in the ratings of Aaa- and Aa-rated countries with large ESM capital contribution keys, i.e., Germany, France and the Netherlands.

Furthermore, a weakening of the political commitment among euro area member states to the ESM could also have negative rating implications. Also, given that the ESM's rating is based on the assumption of superior financial-management capabilities, transition/downgrade risks could also arise from a potential erosion of those capabilities. Such risks would arise in the event of an inappropriate skill transfer or skill acquisition that might adversely affect ESM's governance and risk management practice.

Given that the outlook on the ESM's provisional long-term debt rating is currently negative, the rating is unlikely to experience upward pressure in the near term. However, Moody's could change the outlook for the ESM's provisional long-term debt rating to stable if the outlooks on the ratings of the highly rated countries that are key capital contributors to the ESM returned to stable.

RATING METHODOLOGY

The ESM's ratings were assigned by evaluating factors that Moody's considers relevant to the credit profile of the issuer, such as the issuer's (i) business risk and competitive position compared with others within the industry; (ii) capital structure and financial risk; (iii) projected performance over the near to intermediate term; and (iv) management's tolerance for risk. Moody's compared these attributes against other issuers both within and outside ESM's core industry and believes that the ESM's ratings are comparable to those of other issuers with similar credit risk.

Moody's assigns a provisional rating when it is highly likely that the rating will become definitive after all documents have been received. Moody's will monitor the transaction on an ongoing basis to ensure that it continues to perform in the manner expected. Any subsequent changes in the rating will be publicly announced.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating are the following : parties involved in the ratings, parties not involved in the ratings, and public information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

The rated entity has received a Rating Assessment Service within the last two years preceding the Credit Rating Action.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Dietmar Hornung VP - Senior Credit Officer Sovereign Risk Group Moody'sDeutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Bart Oosterveld MD - Sovereign Risk Sovereign Risk Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Deutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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