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Rating Action:

Moody's downgrades Region of Valencia to Ba3; ratings of all Spanish sub-sovereigns placed on review for downgrade

12 Jan 2012

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 rated by MIS's EU credit rating agencies" on the ratings disclosure 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 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

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
No Related Data.
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