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Global Credit Research - 05 Oct 2010
Madrid, October 05, 2010 -- Moody's Investors Service has today downgraded to Aa1 from Aaa the issuer
and long-term debt ratings of three Spanish government-related
issuers (GRIs), namely: (i)Administrador de Infraestructuras
Ferroviarias (ADIF), (ii) Corporación de Reservas Estratégicas
(CORES) and (iii) Sociedad Estatal de Participaciones Industriales (SEPI).
The outlook on the ratings is now stable. Today's rating action
concludes the review for possible downgrade, which was initiated
by Moody's on 1 July 2010.
These rating actions follow Moody's recent downgrade of the Kingdom of
Spain to Aa1 from Aaa on September 30, 2010, which was prompted
by (1) the country's weak economic growth prospects, also relative
to other peer sovereigns, as the process of rebalancing the economy
away from the construction and real-estate sectors will likely
take several years; (2) the considerable deterioration of the Spanish
government's financial strength, as reflected in a more pronounced
fiscal deterioration compared to other peer sovereigns; and (3) worsening
debt affordability (i.e. interest payments as a share of
revenues) and significant borrowing requirements, implying that
the government remains vulnerable to further episodes of market volatility.
Although ADIF is not explicitly guaranteed by the Spanish State,
Moody's notes that the rating is in line with the sovereign rating of
the Kingdom of Spain due to the very high level of dependence and support
based on the special legal status and the importance as a major part of
Spain's transport and infrastructure. However, Moody´s
noted that the underlying credit strength or Baseline Credit Assessment
(BCA) of ADIF is perceived to be weakening due to the increasing debt
levels at ADIF to fund the high speed railroad infrastructure in Spain.
A further downgrade of the rating of ADIF would occur if the sovereign
rating of the Kingdom of Spain were to be downgraded or if the levels
of support and/or dependence were to diminish substantially. Downward
pressure on the rating could also occur if the BCA deteriorates substantially.
An upgrade would be considered if the sovereign rating of the Kingdon
of Spain is upgraded.
Although CORES and SEPI do not enjoy explicit guarantees from the Spanish
government either, Moody's notes that their ratings are in line
with the sovereign rating of the Kingdom of Spain. This is because
the ratings of CORES and SEPI are based on Moody's assumption that these
entities will remain key instruments for the Spanish government's public
sector management and oil reserves policy. Therefore, the
recent downgrade of the sovereign ratings of Spain has triggered a downgrade
of the ratings of CORES and SEPI.
The importance to the economy and to the Government's policies of CORES
and SEPI is very strong, which combined with their limited degree
of autonomy with a heavy government footprint over their business plans,
budgets, revenue sources and funding, limits our standalone
analysis, and leads us to use a credit substitution (CS) approach
to both entities and assign a rating at the government's rating
level instead of applying the more granular GRI framework to assign such
rating. Therefore, in these two cases, instead of assigning
a BCA and assumptions on both support and dependence, Moody's
has applied credit substitution and assigned a rating at the same level
as the government's rating. Moody's has nonetheless
considered the standalone profiles of each of these companies including,
in the case of CORES, its currently adequate asset to debt coverage.
In the absence of a change in the nature of these entities or the perceived
strength of underlying sovereign support, a further downgrade in
the ratings of both SEPI and CORES would most likely be driven by a downgrade
in the rating of the Kingdom of Spain. In addition, downward
pressure on CORES' rating could build up if its liquidity profile
deteriorates beyond Moody's expectations or if the company's
headroom under the asset coverage of debt ratio weakens materially.
A rating upgrade for SEPI and CORES would be considered if the sovereign
rating of the Kingdom of Spain is upgraded.
All of the above companies are government-related issuers which
have an element of potential government support incorporated within their
ratings in accordance with Moody's rating methodology for government-related
For additional information on rating factors, please refer to the
individual issuer credit opinions, available on www.moodys.com.
Moody's last rating action pertaining to ADIF, CORES, and
SEPI was on 1 July 2010 in light of the rating action to place the Aaa
ratings of the Kingdom of Spain on review for possible downgrade.
The principal methodology used in rating Administrador de Infraestructuras
Ferroviarias, Corporación de Reservas Estratégicas
and Sociedad Estatal de Participaciones Industriales was Government-Related
Issuers: Methodology Update published in July 2010. Other
methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
Headquartered in Madrid, Spain, ADIF is responsible for:
i) owning and managing the railway infrastructure including tracks,
stations, and freight terminals, on behalf of the Spanish
government; ii) managing rail traffic; iii) distributing capacity
to rail operators; and iv) collecting fees for infrastructure,
station and freight terminal use.
Madrid-based CORES is the organisation responsible for managing
the strategic oil reserves and controlling compulsory reserves (petroleum
products and natural gas) in Spain. By law, all companies
authorised to distribute oil products in Spain - both operators
and importers - must be members of CORES and pay its monthly fees
or risk losing their licence.
Headquartered in Madrid, SEPI is a public law entity which holds
equity stakes in companies in various industries in Spain including real
state, aerospace, shipping, engineering, and finance.
The entity was created as per Royal Decree 5/1995 under the public law
bylaws in Spain. It is ascribed to the Ministry of Economy and
its purpose is to i) maximise the return of its equity holdings;
ii) determine a strategy to maximise the value of its portfolio;
iii) manage and minimise the debt held by the former INI and iv) supervise
and manage a conglomerate of publicly-owned companies in strategic
sectors or in non-competitive industrial sectors under the EU directives
which enable governments to intervene in the restructuring of certain
activities that might be considered obsolete.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service's information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Moody's Investors Service may have provided Ancillary or Other Permissible
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three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
MOODY'S adopts all necessary measures so that the information it uses
in assigning a credit 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.
Please see ratings tab on the issuer/entity page on Moodys.com
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The date on which some Credit Ratings were first released goes back to
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Senior Vice President
Corporate Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Paloma San Valentin
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Espana, S.A.
Moody's downgrades SEPI, ADIF and CORES to Aa1; outlook stable
Barbara de Braganza, 2
No Related Data.
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