Madrid, January 12, 2012 -- Moody's Investors Service has today downgraded the region of Valencia's
debt ratings by two notches to Ba3 from Ba1 due to the region's
liquidity issues and large forthcoming debt repayments. Valencia's
short-term debt rating is unchanged at Not-Prime.
Valencia's ratings remain on review for downgrade. In addition,
Moody's has placed on review for downgrade the ratings of all other
Spanish sub-sovereigns. This is due to (i) growing liquidity
pressures on Spanish sub-sovereigns; and (ii) Moody's
concerns over whether the regions will achieve the 2012 deficit target.
A full list of affected ratings actions can be found at the end of this
press release.
RATINGS RATIONALE
--DOWNGRADE OF THE REGION OF VALENCIA
The downgrade of Valencia's long-term debt rating by two
notches to Ba3 is based on its growing liquidity problems and large forthcoming
debt repayments in 2012 (EUR4.4 billion). On 27 December,
the region missed a payment of EUR123 million to Deutsche Bank and although
it was eventually made within the contractually allowed grace period,
the delay highlights the region's increasingly pressured liquidity
position. While Valencia has recently contracted short-term
loans totalling EUR1.18 billion (including EUR300 million from
Instituto de Credito Official, a financial institution fully owned
by the central government) and benefits from the advancement of various
state transfers, Moody's views the region's liquidity
position as still very precarious and dependent on supportive measures
taken by the central government.
--RATIONALE FOR REVIEW FOR DOWNGRADE OF REGIONAL AND LOCAL
GOVERNMENTS
The placement on review for downgrade of all rated Spanish sub-sovereigns
reflects two factors.
Firstly, the announcement reflects growing liquidity pressures on
regional and local governments, which were prompted by deteriorating
market conditions for sub-sovereign issuers in Spain. Moody's-rated
Spanish regions face approximately EUR17 billion of debt repayments in
2012. As regions' access to capital markets remains problematic,
they are left with few funding options, usually at high interest
rates and with short-term maturities. Indeed, several
regions issued retail bonds in 2011 (EUR10.3 billion, including
EUR7.4 billion maturing in 2012), which further increases
refinancing risks (see 'Retail Bond Issuance by Spanish Regional
Governments Is Credit Negative' released on 9 May 2011), as
evidenced by Valencia's failure to fully refinance its EUR1.5
billion retail bond last December. Moody's analysis is now
increasingly focused on an assessment of liquidity given that market confidence
problems for Spanish regions are lasting, with even fiscally sound
regions now exposed to liquidity problems.
Secondly, the announcement reflects Moody's concerns about
the regions' capacity to achieve the deficit target for 2012.
The government recently indicated that the regions missed their deficit
target by a wide margin in 2011, with an estimated deficit-to-GDP
of 2.7% against a target of 1.3% (see 'Spanish
Regions Will Miss 2011 Deficit Targets, a Credit Negative'
-- 5 December 2011). In this context, the regions'
compliance in 2012 is highly uncertain. The regions' compliance
to the deficit objective is further complicated by the deterioration in
the macroeconomic environment, reflected in Moody's current
estimate of a real GDP contraction in Spain of 0.5%-1%
in 2012.
--FACTORS TO BE CONSIDERED IN THE REVIEW
The review for downgrade aims to conclude in the next three months,
during which time Moody's will re-examine sub-sovereigns'
level of cash-on-hand together with their access to credit
facilities to assess their ability to meet financing requirements in 2012
given difficult market conditions. During the review, Moody's
will also examine the credit implications of the central government's
announcement last week to reform the financing system for regional governments
with the view to tighten government control over regional budgets.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Stabilisation of the outlooks would require the execution of detailed
plans from the regional and local administrations to restore fiscal balances
and reverse debt ratios. Changes to the institutional framework
that would result in greater support from the central government could
also provide upward pressure on the ratings.
Further deterioration of the operating environment in Spain that would
put pressure on the sovereign rating would negatively impact the ratings
of Spanish sub-sovereigns. Additionally, failure of
any individual sub-sovereign to progress towards fiscal consolidation
targets would add pressure to that specific rating.
RATINGS AFFECTED
The following ratings have been downgraded:
- Region of Valencia: debt ratings downgraded to Ba3 from
Ba1; under review for downgrade.
- Instituto Valenciano de Finanzas: debt ratings downgraded
to Ba3 from Ba1, in line with the Generalitat de Valencia's downgrade;
rating on review for downgrade.
- Notes of CACSA and Universities of Valencia (Universidad de Valencia,
Universidad de Alicante, Universidad Jaume 1 de Castellón
and Universidad Politécnica de Valencia): downgraded to Ba3
from Ba1; rating on review for downgrade.
- Notes of Feria Valencia: underlying rating downgraded to
Ba3 on review for downgrade from Ba1 (A and B Certificates); the
rating of Feria Valencia's notes remains at Aa3/negative, in line
with the financial guarantee provided by Assured Guarantee (Europe) Ltd
(formerly, Financial Security Assurance (UK) Ltd).
At the same time, Moody's has placed under review for downgrade:
- Basque Country: long-term issuer and debt ratings
of Aa3;
- Consorcio de Transportes de Bizkaia: long-term issuer
rating of Aa3;
- Diputacion Foral de Guipuzcoa: long-term issuer
rating of Aa3;
- Diputacion Foral de Bizkaia: long-term issuer rating
of Aa3;
- Comunidad Autónoma de Galicia: long-term
issuer rating of A1;
- Comunidad Autónoma de Madrid: long-term issuer
rating of A1;
- Junta de Extremadura: long-term issuer rating of
A1;
- Junta de Andalucia: long-term issuer and debt ratings
of A2;
- Junta de Castilla y Leon: long-term issuer and debt
ratings of A2;
- Comunidad Autonoma de Murcia: long-term issuer and
debt ratings of Baa1;
- Generalitat de Catalunya: long-term issuer and debt
ratings of Baa2; short-term rating of Prime-3;
- Junta de Comunidades de Castilla-La Mancha: long-term
issuer and debt ratings of Ba2.
METHODOLOGIES USED
The methodologies used in these ratings were Regional and Local Governments
Outside the US published in May 2008,The Application of Joint-Default
Analysis to Regional and Local Governments published in December 2008,
and Government-Related Issuers: Methodology Update published
in July 2010. Please see the Credit Policy page on www.moodys.com
for a copy of these methodologies.
Moody's methodology for rating a security insured by a financial guarantor
considers the higher of: (i) the guarantor's rating; and (ii)
the underlying rating of the security.
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,
public information, and confidential and proprietary Moody's
Investors Service 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.
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
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page on our website www.moodys.com for further information.
In addition to the information provided below please find on the ratings
tab of the issuer page at www.moodys.com, for each
of the ratings covered, Moody's disclosures on the lead rating
analyst and the Moody's legal entity that has issued each of the
ratings.
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
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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
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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.
Marisol Blazquez
Analyst
Sub-Sovereign Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Sebastien Hay
VP - Senior Credit Officer
Sub-Sovereign Group
Moody’s Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
David Rubinoff
MD - Sub-Sovereigns
Sub-Sovereign Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades Region of Valencia to Ba3; ratings of all Spanish sub-sovereigns placed on review for downgrade
