Madrid, October 22, 2012 -- Moody's Investors Service has today downgraded by one or two notches the
ratings assigned to five Spanish regions -- Andalucia,
Extremadura, Castilla-La Mancha, Catalunya, and
Murcia.
At the same time, Moody's has today confirmed the ratings of the
Basque Country and the Diputacion Foral de Bizkaia at Baa2, one
notch above the sovereign bond ratings. In addition, the
ratings of the regions of Madrid, Castilla y Leon and Galicia have
also been confirmed at Baa3, on par with the sovereign ratings.
Finally, the ratings of the region of Valencia and of four government-related
entities in Valencia have been confirmed at B1.
Further to these rating actions, all affected regions carry negative
outlooks in line with the negative outlook carried by the Baa3 sovereign
bond rating of the Government of Spain. Today's rating actions
conclude the review for downgrade that Moody's initiated on 15 June 2012.
A detailed list of the issuers and ratings affected by this rating action
is provided at the end of this press release.
For additional information on Sovereign ratings, please refer to
the webpage containing Moody's related announcements http://www.moodys.com/eusovereign.
RATINGS RATIONALE
-RATIONALE FOR THE DOWNGRADES
--REGIONS OF ANDALUCIA, CASTILLA LA MANCHA,
CATALUNYA, MURCIA
Moody's decision to downgrade the ratings of the four Spanish regions
of Andalucia (to Ba2 from Baa3), Castilla-La Mancha (to Ba3
from Ba2), Catalunya (to Ba3 from Ba1) and Murcia (to Ba3 from Ba1)
was driven by the deterioration in their liquidity positions, as
evidenced by their very limited cash reserves as of September 2012 and
their significant reliance on short-term credit lines to fund operating
needs.
In addition, Catalunya, Andalucia and Murcia face large debt
redemptions in Q4 2012 when retail bonds issued in 2011 are due to mature.
In this context, five regions -- namely, Catalunya,
Andalucia, Murcia, Valencia and Castilla La Mancha --
have already requested liquidity support from the Fondo de Liquidez Autonomico
(FLA) to cover their financing needs in the second half of 2012.
While the FLA greatly reduces the risk of a region's liquidity driven
default in the short term, it does not address their fundamental
economic and financial weaknesses, namely: (1) the significant
uncertainty regarding viable long-term funding alternatives,
and the resulting considerable reliance on government funding; and
(2) the regions' significant difficulties in controlling their deficit
and debt trajectories in an economic environment in which the implementation
of cost-cutting measures to redress the regions' structural
deficits will likely take longer than expected.
Thus, Moody's assesses the standalone creditworthiness (Baseline
Credit Assessment or BCA) of regions having requested FLA funding as being
very weak, reflecting our view that these regions would have serious
difficulties in meeting debt obligations without it. The very low
BCAs also reflect Moody's view that these regions, faced with
persistent fiscal challenges and weak liquidity positions, will
need to seek further external support in the next year. At the
same time, their ratings incorporate Moody's assessment of
a heightened likelihood of government support, as corroborated by
the central government's track record of support over the last few
months, which partially offsets the very weak standalone creditworthiness.
For full details, please refer to Moody's Special Comment
"FLA Alleviates Pressure on Spanish Regions but Economic and Financial
Weaknesses Persist" at http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_146588.
--REGION OF EXTREMADURA
Moody's decision to downgrade Extremadura's rating by one
notch to Ba1 from Baa3 reflects the region's persistently high operating
deficits and its weak liquidity position. While the savings measures
that the region is currently implementing will help lower the deficit
from the 4.59% recorded in 2011, poor budget results
in H1 2012 suggest that Extremadura will likely miss the deficit target
by a wide margin. Moreover, Moody's assesses the region's
liquidity position as being weak, as evidenced by its extensive
use of short-term credit lines. While Extremadura has limited
refinancing needs in 2012, its large deficit expected in 2012 will
result in significant borrowing needs (EUR494 million, or 13%
of its operating revenue), for which it has only been able to secure
EUR56 million to date.
-RATIONALE FOR RATINGS CONFIRMATION
--THE BASQUE COUNTRY AND THE PROVINCE OF BIZKAIA
Moody's decision to confirm the Baa2 ratings of the Basque Country
and the province of Bizkaia reflects the confirmation of the sovereign
bond ratings on 16 October 2012 as well as their unchanged fiscal and
financial positions since their downgrade on 15 June 2012. The
unique and constitutionally protected tax regime of the Basque Country
and the province of Bizkaia currently allows them to retain enough credit
strength to maintain their ratings one notch above that of the sovereign.
In addition, their limited borrowing needs in 2012 and 2013 as well
as their comfortable liquidity positions limit the impact of difficult
market conditions on their financial performances.
-- REGIONS OF CASTILLA Y LEON, GALICIA AND MADRID
The rating agency's decisions to confirm the Baa3 regions of Castilla
y Leon, Galicia and Madrid also reflects the confirmation of the
sovereign bond ratings on 16 October 2012 and the regions' unchanged
fiscal and financial positions since their downgrade on 15 June 2012.
Although the three regions have reported stronger financial performances
than other Moody's-rated Spanish regions throughout the crisis,
the rating agency notes that their income stream largely relies on state
transfers and shared taxes with the sovereign, thus capping their
ratings at the level of the sovereign rating.
-- REGION OF VALENCIA
Moody's decision to confirm Valencia's B1 debt rating reflects
the fact that the region's high debt ratios and tight liquidity
position are already reflected in the region's non-investment-grade
rating, currently the lowest amongst Moody's-rated
regions in Spain.
Valencia has a high level of amortisations remaining before December 2012,
which, combined with its low cash on hand and extensive use of its
credit line facilities, forced the region to request liquidity support
from the sovereign through the FLA. This follows a request for
financing support in December 2011, subsequent to the region's
difficulties in refinancing its retail bond maturing at that time.
While Moody's views the region's consolidation efforts outlined
in its restructuring plan positively, the region is likely to miss
the deficit target of 1.5% of regional GDP in 2012.
WHAT COULD MOVE THE RATINGS UP/DOWN
A stabilisation of the outlooks or an upgrade of the ratings would require
(1) the stabilisation or upgrade of the sovereign rating; and (2)
successful plans from the regional administrations to restore their fiscal
performances and reverse debt ratios.
Any further deterioration in the operating environment in Spain that would
exert pressure on the sovereign rating would also have a negative impact
on the ratings of Spanish sub-sovereigns. In addition,
any sign of weakening government support would be a credit-negative
factor. Finally, a failure of any individual sub-sovereign
to progress towards fiscal consolidation targets would add pressure to
that specific rating.
RATINGS AFFECTED
The ratings of the following five regions have been downgraded:
- Junta de Extremadura: long-term issuer rating downgraded
by one notch to Ba1 from Baa3; negative outlook;
- Junta de Andalucia: long-term issuer and debt ratings
downgraded by two notches to Ba2 from Baa3; negative outlook;
- Comunidad Autonoma de Murcia: long-term issuer and
debt ratings downgraded by two notches to Ba3 from Ba1; negative
outlook;
- Castilla-La Mancha: long-term issuer and
debt ratings downgraded by one notch to Ba3 from Ba2; negative outlook;
- Catalunya: long-term issuer and debt ratings downgraded
by two notches to Ba3 from Ba1; negative outlook; short-term
rating affirmed at Not-Prime;
The ratings of the following regions or entities have been confirmed:
- Basque Country: long-term issuer and debt ratings
confirmed at Baa2; negative outlook;
- Diputacion Foral de Bizkaia: long-term issuer rating
confirmed at Baa2; negative outlook;
- Comunidad Autonoma de Madrid: long-term issuer rating
confirmed at Baa3; negative outlook;
- Junta de Castilla y Leon: long-term issuer and debt
ratings confirmed at Baa3; negative outlook;
- Comunidad Autonoma de Galicia: long-term issuer
rating confirmed at Baa3; negative outlook;
- Region of Valencia: debt ratings confirmed at B1;
negative outlook; short-term rating affirmed at Not-Prime;
- Instituto Valenciano de Finanzas: debt rating confirmed
at B1, negative outlook, in line with Valencia's ratings;
- Notes of CACSA and Universities of Valencia (Universidad de Valencia,
Universidad de Alicante, Universidad Jaume 1 de Castellón
and Universidad Politécnica de Valencia) confirmed at B1,
negative outlook;
- Notes of Feria Valencia: underlying rating confirmed at
B1, negative outlook (A and B Certificates).
PRINCIPAL METHODOLOGIES
The methodologies used in these ratings were "Regional and Local
Governments Outside the US" published in May 2008, and "The
Application of Joint-Default Analysis to Regional and Local Governments"
published in December 2008. 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 ratings have been disclosed to the rated entities or their designated
agent(s) and issued with no amendment resulting from that disclosure.
Information sources used to prepare each of the ratings are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Analytics information.
Moody's considers the quality of information available on the rated
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
Moody's adopts all necessary measures so that the information it
uses in assigning the ratings 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 entities or their 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.
The below contact information is provided for information purposes only.
Please see the issuer page on www.moodys.com for Moody's
regulatory disclosure of the name of the lead analyst and the office that
has issued the credit rating.
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.
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
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 five Spanish regions; confirms ratings of other five regions
