Madrid, October 19, 2018 -- Moody's Investors Service has today changed the outlook on the Generalitat
de Catalunya's (Catalunya, Generalitat de) ratings to stable
from negative and affirmed its long-term issuer and senior unsecured
ratings at Ba3. Moody's also affirmed the Senior Unsecured
MTN rating at (P)Ba3, the short term rating at (P)NP and,
commercial paper at NP. Finally, Moody's changed Catalunya's
baseline credit assessment (BCA) to caa1 from caa2.
The outlook change to stable reflects: (i) the rating agency's
view that the deterioration in the region's economy after the unilateral
declaration of independence from Spain has been limited; (ii) that
Catalunya benefits from Spain's economic growth, putting the
region on the path towards fiscal consolidation, reducing its deficit
levels and debt metrics.
RATINGS RATIONALE
RATIONALE FOR OUTLOOK CHANGE TO STABLE
The outlook change to stable from negative on Catalunya's ratings reflects
Moody's view that a significant deterioration in the region's
economy after the unilateral declaration of independence in October 2017
has been limited. While Moody's notes a slowdown in the region's
domestic demand growth in the last quarter of 2017, its effects
on the annual real gross domestic product (GDP) growth was limited,
as the region grew by 3.3% vs. 3.1%
at the national level in 2017. The industry sector, which
accounts for 20% of the region's GDP (vs. 16%
at the national level), remained seemingly intact, growing
above the national level and further evidenced by a strong industrial
production index. As a result, the rating agency notes that
Catalunya continues to be the largest regional economy in Spain and contributes
19% of Spain's GDP.
Moody's notes that positive economic growth in Spain is helping
the region's fiscal consolidation, improving gross operating
performance and reducing deficit levels. In addition, although
regional debt levels should continue to increase through 2020, the
ratio of net direct and indirect debt to operating revenue should decrease,
as Spain's strong GDP growth bolsters regional tax revenue at a
faster pace than debt stock growth.
RATIONALE FOR AFFIRMATION OF Ba3 RATING
The affirmation of the Ba3 long-term issuer and debt ratings is
the combination of an improvement in Catalunya's standalone credit
profile, as reflected in the upgrade of its BCA to caa1 from caa2,
and the high extraordinary support received from the central government.
The upgrade of the Generalitat de Catalunya's BCA mainly reflects
a lower-than-expected impact from political tensions on
the region's economy. However, the BCA also reflects
the region's financial performance, which remains weak,
despite improving in 2017. In 2017, Catalunya's financial
performance resulted in a negative gross operating balance (-2%
of operating revenue), high financing deficit (-6.4%
of operating revenue) and very high debt burden, reflected by a
net direct and indirect debt to operating revenue of 285% in 2017,
compared with the average for Moody's-rated regions of 197%.
Moody's believes that expenditures will continue to increase in
the coming years, as the regional government's main focus
is on the region's self-determination with no structural
reforms planned for this term.
Moody's views positively the high support received from the central
government to date mainly via the "Fondo de Liquidez Autonómico"
(FLA). Moody's expects that this support will continue to
be forthcoming. The region has received a total of €57 billion
of liquidity support from the central government's different sources
since 2012, which is equivalent to around 80% of Catalunya's
outstanding direct debt. The rating agency expects that an additional
€8 billion will be financed through the FLA in 2019. In addition,
the central government recently allowed the Generalitat de Catalunya to
convert €2.7 billion of its short-term debt into long-term
debt, which can therefore be refinanced under the FLA, reducing
the refinancing risk of its €4.7 billion of outstanding short-term
debt.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Moody's would consider upgrading Catalunya's rating if its fiscal
and financial performance significantly improved. Additionally,
a strengthening of support from the central government could also lead
to an upgrade.
In contrast, downward pressure on the rating could materialise if
Catalunya's policy changes reversed its fiscal consolidation or if the
region's fiscal performance deteriorated. In addition, a
downgrade of the sovereign rating, or any indication of weakening
government support, would likely lead to a downgrade of Catalunya's
rating.
The specific economic indicators, as required by EU regulation,
are not available for this entity. The following national economic
indicators are relevant to the sovereign rating, which was used
as an input to this credit rating action.
Sovereign Issuer: Spain, Government of
GDP per capita (PPP basis, US$): 38,381 (2017
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 3% (2017 Actual) (also
known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 1.1%
(2017 Actual)
Gen. Gov. Financial Balance/GDP: -3.1%
(2017 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 1.8% (2017 Actual) (also
known as External Balance)
External debt/GDP: [not available]
Level of economic development: High level of economic resilience
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 17 October 2018, a rating committee was called to discuss the
rating of the Catalunya, Generalitat de. The main points
raised during the discussion were: The issuer's economic fundamentals,
including its economic strength, have materially increased.
The issuer's fiscal or financial strength, including its debt profile,
has materially increased.
The principal methodology used in these ratings was Regional and Local
Governments published in January 2018. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain 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 certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain 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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit 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
Client Service: 44 20 7772 5454
David Rubinoff
MD - Sub-Sovereigns
Sub-Sovereign Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454
